ACH Payment Processing for Business
What is an ACH Payment?
ACH stands for “Automated Clearing House.” It is run by the National Automated Clearing House Association who is at the center of commerce in the United States. It’s a financial institution that works to move money from one bank account to another.
This is done through a batch processing system that carries more than $41 trillion dollars in 24 billion electronic payments a year. Throughout the day, wire transfers are accumulated with the payment processor for later processing.
The ACH Network eliminates the need for paper checks. It only processes two types of transactions: Direct Payments via ACH and Direct Deposits via ACH. Just those two payment options.
This is the deposit of funds for one of the following:
- Funds for payroll
- Employee expense reimbursement
- Government benefits
- Tax and other refunds
- Interest payments
This includes any ACH credit payment from a government or business to a consumer.
This method is the use of funds to make a payment. Organizations or individuals can make a Direct Payment as either an ACH credit or an ACH debit.
- A direct payment that is processed as an ACH credit will push the funds into an account. One example of this is when a consumer makes a payment with their bank or credit union to pay a bill online.
- A direct payment that is processed as an ACH debit pulls funds from an account. A prime example of this would be when a consumer sets up a recurring payment for a bill. Then the account is debited automatically.
Both of these types process quickly within a business day or two. The settlement of funds from ACH payment processing typically takes just a day. This is what the Nacha operating rules require. Recent enhancements now enable same-day processing in real-time.
Typically, for a consumer and business to complete an ACH, the customer’s bank account and routing number must be shared. Without the account information, the customer’s account can’t be debited.
Types of ACH Payments
You may not realize it, but there are many types of electronic payments that can be made and you’ve probably already performed (or accepted) plenty. The different types of ACH transfers include:
- Direct deposit from an employer
- Paying bills electronically out of a checking account
- Direct payment via ACH transactions
- Debit card payments online
- Recurring payments
- One-time payments
- IRS payments
- Moving funds from one account to another
The ACH network is typically responsible for processing all of these payment methods.
The Benefits of an ACH Payment
When it comes to a smart processing solution, ACH seems to take the cake. Here are some of the benefits people can reap from this payment gateway:
There are very few processing fees. ACH payments are inexpensive. A small business can save a lot through a merchant account that processes ACH payments.
Because these debit transactions are electronic, they use much fewer resources than paper checks. There is no need to purchase paper, ink, the fuel to transport checks, the time or labor to handle and deposit them, etc. Recordkeeping is always smoother with ACH.
ACH makes it easier to track income and expenses in savings accounts. With every transaction, banks will be creating an electronic record. Additionally, financial management and accounting tools can be used to access that transaction history.
Easy to Manage
When someone pays with a check, a business needs to wait for the mail to arrive. There is no bank routing or instant payment. ACH is a way to streamline operations and it’s much less of a hassle. Payments can also get lost in the mail and if they are received, you need someone to enter them into the system. This can be labor-intensive.
Electronic payments always arrive quickly and are automatically entered into the system. There’s no need to forward checks to the bank or enter anything manually.
If you are a forgetful person, or perhaps super busy, ACH payments can be automated. For consumers with bills, recurring payments can be set up and no longer worried about. Companies can pay service providers immediately.
Less Expensive Than Plastic
For businesses that generally accept payments by credit card, it often costs less to process an ACH transfer. Especially if you are collecting recurring payments. Those savings can really add up. Automation only increases the benefit. However, ACH will not give you an approval in real-time like a credit card terminal.
Long Distance Payments
ACH can be accepted remotely. Although credit cards sometimes can as well, if a customer doesn’t want to give out that information, it’s a great alternative.
How to Accept Payments by ACH
If a business wants to start using ACH with customers, you need to partner with a payment processor. You may already have a relationship with a virtual terminal, but are not using the ACH aspect of the platform. There are many different brands on the market so it helps to know exactly what you need.
You can start by inquiring with your existing service provider if they can enable ACH. This would include:
- The vendor that already processes credit card payments
- The bank where the business accounts are kept
- Any accounting software provider (a good one will allow a company to create invoices and accept ACH payments)
New processors enter the market all the time and some may be a better fit for small businesses that make infrequent transfers. The average cost for making an ACH payment is $.29 per transaction.
It’s important to take the time and look at the bigger picture. It doesn’t cost anything to process a check but how much are you paying someone to drive to the bank every day? Having a 360-degree view of the business will help you decide.