Tipalti
  • Solutions
    • Accounts Payable AutomationEnd-to-end, invoice-based payments designed for growing companies
      • Supplier Management IconSupplier Management
      • Invoice IconInvoice Management
      • PO Matching IconPurchase Order Matching
      • Global Payouts IconPayment Remittance
      • Payment RecPayment Reconciliation
    • Purchase Order ManagementControl and visibility over corporate spend
    • Global Partner PaymentsScalable payment solutions for creator, ad tech, sharing and marketplaces economy
      • Supplier Management IconPartner Management
      • Global Payouts IconGlobal Payments
      • Fraud Detection IconFraud Detection
      • Self Billing IconSelf-Billing Module
      • Tax Compliant IconTax and VAT Compliance
  • Technology
    • Overview
      • The Tipalti PlatformGlobal, scalable, and fully automated
    • Features
      • Multi Entity IconMulti-Entity Architecture
      • Financial Controls IconFinancial Controls
      • Payment API IconPayment API
      • Secure Cloud IconSecure Cloud
      • AI IconPi Payables Intelligence
    • Integrations
      • ERP & Accounting
      • NetSuite
      • Sage Intacct
      • QuickBooks
      • Microsoft Dynamics
      • Sage Accounting
      • Xero Accounting
      • Performance Marketing
      • Custom Integrations
  • Why Tipalti
    • Overview
      • Why TipaltiA modern, holistic, powerful payables solution that scales with your changing business needs
      • Customer StoriesSee how we transform finance operations
    • Benefits
      • Accolades
      • Invoice-Based Workflow
      • Performance-Based Workflow
      • Benefits by Role
    • Additional Services
      • Currency Management
      • FX Hedging
      • Implementation Services
      • Supplier Enablement Program
    • Industries
      • Business Services
      • Software and Technology
      • Ecommerce and Retail
      • Marketplaces and Gig Economy
      • Video and Digital Media
      • Video Gaming
      • Financial Services
      • Online Services
      • Education
      • Healthcare
      • Advertising Technology
      • Affiliate and Influencer Networks
      • Manufacturing and Wholesale
  • Resources
    • Blog
      • The Financial Advisor BlogStrategy and trends in payments
    • Guides
      • What is AP Automation?
      • What is Self-Billing?
      • Compare Payment Methods
      • Future of Finance
      • Destination IPO
      • Payments Across Borders
      • The Total Guide to ERP Integration
  • Company
    • About Us
      • About Tipalti
      • Careers
      • Partnerships
      • Contact Us
    • Help
      • Support
      • FAQs
    • News & Events
      • Events
      • Newsroom
  • Login
  • Book a Demo
Get Started

How to Set up ACH Payments


We've paired this article with a comprehensive guide to global payment methods. Get your free copy of the Global Payment Method Guide!
Get the FREE guide
Home / Resources / Guide / Setting up ACH Payments

Steps to Setting Up ACH Payments

  1. Set up your account.
  2. Choose an ACH payment processor.
  3. Fill out the accompanying paperwork.
  4. Understand the different types of ACH payments.
  5. Choose the right entry class.
  6. Read the ACH payment terms & conditions.

ACH stands for “Automated Clearing House.” When ACH payments are processed, it means they have gone through the Automated Clearing House for the purpose of moving money from one account to another using an electronic processing method.

Businesses garner numerous benefits when they make ACH payments. It not only simplifies their business practices, but it also has the potential to enhance the user experience.

In 2016, the number of payments processed through the ACH hit 25.5 billion and resulted in more than $43 trillion being transferred. If you want to learn how to set up ACH payments, we’ve put together a helpful six-step guide to walk you through the process.

Transform the way
your finance team works.

Bring scale and efficiency to your business with fully-automated, end-to-end payables.

Read more

How to Set up ACH Payments

  1. Start By Setting up Your Account

    No matter the industry you are operating in, making ACH payments has the potential to increase revenue. ACH payments usually come with lower transaction fees when compared to wire transfers.

    Making ACH payments is particularly beneficial when important suppliers and partners. For example, offering a choice of payment method to preferred partners can improve the relationship and result in better retention.

    Before you can set up an ACH payment account, however, you will need to choose a payment processor, which takes us to the next step.

  2. Choose an ACH Payment Processor

    Check with your bank to determine its ACH processing fees. You may find it’s more efficient to connect with an ACH operator or payables automation solution. Comparing the details of features and the workflow from three to four different operators is an excellent way to choose one that can best meet your needs.

  3. Fill Out Paperwork

    You are going to learn a lot about how ACH payments work when you fill out the accompanying paperwork to make them.

    To put it simply, ACH payments work by electronically transferring money from one account to another. If you are already paying suppliers by check or wire transfer, offering ACH is simply an improvement to your current process.

    ACH payments save a lot of time when paying for services. For those accepting the payments, it can result in reduced processing time and fees when compared with wire transfers or checks. As the payer, it gives you the benefit of being able to make payments to vendors without having to enter the vendor’s account information again and again. You can make ACH payments on a one-time or recurring basis.

    Here’s an overview of how ACH payments work:

    • The payment originator initiates the ACH payment by providing permission for the transaction to take place.

    • The Originating Depository Financial Institution (ODFI), which is your bank or ACH operator, records the ACH transaction entry.

    • Sometime throughout the day, the ODFI will send a batch of ACH requests to the Automated Clearing House or the Federal Reserve. Most ODFIs send anywhere from one to three batches a day.

    • Whichever entity received the batches will accept the requests and process them. Once processed, the requests are transmitted to the Receiving Depository Financial Institutions (RDFIs); these are your vendors or employees.

    • A credit appears on the RDFI account within one to two days, and a debit will appear on the payer’s (your) account to show that the funds have been deducted.

  4. Understand Types of ACH Payments

    There are four basic types of ACH transactions. In the financial industry, these types are referred to as entry classes. As a small business, you will need to be aware of these types to ensure you have a thorough understanding of how ACH payments work.

    1. PDD: This means there has been written permission from the payer to have funds electronically debited from his or her account. Writing a check will not qualify as permission when conducting a PDD transaction.

    2. WEB: When the payer gives permission over the Internet to have the funds electronically debited, this is known as a WEB ACH transaction. Specific authorization language will be used in the permission process, and this language must be easily and clearly understood by the payer.

    3. TEL: With this type of transaction, the payer gives permission over the phone for monies to be debited from his or her account. When a TEL ACH payment takes place, the permission must be recorded for verification purposes.

    4. ARC and BOC: With these types of ACH payments, a written check does constitute permission — however, the payer must be notified that the paper check has the potential of being converted for the purpose of conducting an ACH transaction.

  5. Choose the Right Entry Class

    Businesses must familiarize themselves with the various entry classes before processing ACH payments. It is usually best to choose a service provider who will acquaint you with how to process the payments correctly.

    For example: If a payer provides a valid check and it is processed as a PDD payment and the transaction is disputed, the payment processor will side in his or her favor because the correct entry class was not used. Instead of PDD, it should have been processed as an ARC or BOC ACH payment. There are more than a dozen other entry classes than the ones listed above.

  6. Always Read ACH Payment Terms and Conditions

    Another way to learn how ACH payments work is to read through ACH payments terms and conditions. If you choose to partner with an ACH operator, there will be a detailed piece of writing in an easy-to-understand language that fully outlines how the process works and what you can expect. It will also detail the steps you can take to learn more if you have questions or concerns.

    Now that you have a better understanding of how ACH payments work and how to set up ACH payments, you will need to pinpoint which vendors accept them. For most businesses, making ACH payments is an excellent way to reduce payment processing expenses.

About the Author

Darius Ghassemian

Darius Ghassemian is the Revenue Operations Manager at Tipalti. He started his career in public accounting at KPMG, focusing on auditing venture capital backed startups in the Bay Area. A Bay Area native, he graduated from San Jose State with a Bachelor’s degree in Accounting.


RELATED ARTICLES

Income Statement Definition, Formula & Importance What Do You Need to Perform an ACH Transfer ? Top Procurement Softwares in 2022 Top 11 Accounting Problems & Solutions in 2022 What are Real Time Payments? How RTPs Work ACH vs Wire Transfer - What's the Difference ? What are Payment Rails & How do They Work? How to Set Up Direct Deposit [Complete Guide] Horizontal vs Vertical Integration The Complete Guide to Vendor Selection Process The Top Payoneer Alternatives for 2022 What is a Payment Processor? (Complete Guide) Stripe vs PayPal : Which One Should You Choose ? 6 Common Vendor Fraud Schemes: Identify & Prevent What is the Month End Close Process?

Footer

Solutions

  • Accounts Payable Automation
  • Global Partner Payments
  • PO Management

Capabilities

  • Overview
  • Supplier Management
  • Invoice Management
  • PO Matching
  • Self-Billing Module
  • Payment Reconciliation
  • Global Payments
  • Fraud Detection
  • Tax and VAT Compliance

Why Tipalti

  • Why Tipalti
  • Customer Stories
  • Invoice-Based Workflow
  • Performance-Based Workflow
  • Benefits by Role
  • Benefits by Industry

Technology

  • The Tipalti Platform
  • Multi-Entity Architecture
  • Financial Controls
  • Payment API
  • Secure Cloud
  • Pi Payables Intelligence

Resources

  • The Financial Advisor Blog
  • What is AP Automation?
  • Compare Payment Methods
  • Future of Finance
  • Destination IPO
  • Payments Across Borders
  • The Total Guide to ERP Integration

Company

  • About Tipalti
  • Careers
  • Partnerships
  • Events
  • Press
  • In The News
  • Media Kit
  • Support
  • FAQs

REGION

  • United Kingdom
    • North America
CONTACT US
LinkedIn Instagram Facebook Twitter YouTube
Tipalti Europe Ltd, Elm Barn Stert Road, Kingston Blount, Chinnor, OX39 4SB, Oxfordshire, United Kingdom. Registered in England & Wales, No.:12471817. Tipalti Europe Ltd is authorised by the Financial Conduct Authority as an Electronic Money Institution under the Electronic Money Regulations 2011. Our FRN (Firm Reference number) is 942778.
We Handled It.
Privacy Policy
|
Customer Assistance Policy
© 2010–2022 Tipalti Inc.