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Accepting ACH Payments: Here’s What You Must Know

Aug 7, 2018 | Articles

Short for Automated Clearing House, ACH is an electronic network that allows users to send and receive money between their respective banks.

These digital money transfers go by another name: e-checking. ACH payments share many similarities with their paper-based counterparts. In fact, Automated Clearing House was originally designed as an alternative to paper checks.

However, ACH payment processing offers several advantages over traditional check writing, which explains why this electronic network moves more than $43 trillion every year.

But what is ACH? Why should your business be using it?

How Does ACH Payment Processing Work?

The process begins when a sender and receiver both authorize their respective banks to formally “shake hands.” Establishing this connection needs to happen only once. Thereafter, the partner banks are officially linked in perpetuity.

This setup ease explains why:

  • Companies often use ACH payment processing to pay their employees via direct deposit
  • Consumers like using the ACH network for recurring bills such as utility payments, mobile plans and other ongoing subscriptions

There are many different ways to initiate transfers. For example, senders can input their payment details via an online shopping cart, just as they would with traditional e-commerce. Alternatively, a recipient can “request” payment if using a virtual terminal on his or her end.

It’s also possible to initiate ACH payments via phone, email or text.

What are the advantages of ACH payment processing? Let’s look at some of the key benefits.

Benefit 1: ACH Payment Processing Fees

Arguably the biggest advantage is that ACH payments are substantially cheaper than their check counterparts are.

Here’s why:

For starters, ACH transfers are processed in batches (about rather than individually. This batching helps reduce administrative costs within the network. Those efficiencies are passed onto users in the form of lower prices.

In addition, paper checks carry many hidden costs — such as material inputs, processing delays and time spent manually handling each new check. By contrast, ACH payments occur electronically. As such, no physical materials are required — and little human intervention is needed.

Fun fact: Even if your business receives a paper check, it’s possible to digitally scan it before sending it into the ACH network electronically.

Benefit 2: ACH Processing Time

Sending ACH payments is usually faster than sending paper checks. Both types of payments typically settle in about three to five business days, but paper checks must be physically mailed from one location to another. Therefore, if you’re sending a check from New York to Los Angeles, you may have to wait two or three additional business days for settlement.

ACH payments, however, are not faster than wire transfers or credit card transactions — both of which typically settle in just one or two business days.

Benefit 3: ACH Payment Security

In order for a transaction to go through, the sender and receiver must provide their banks with pre-authorization approval. Thus, anonymity is not an option. This is in sharp contrast to fraudulent card-not-present (CNP) transactions in which thieves use stolen payment data to initiate unauthorized purchases.

An ACH payment can process only if the sender has sufficient money in his or her account. This makes it much harder for users to “bounce checks” — whether accidently or purposely.

Moreover, ACH payments are difficult to reverse. This helps to shield you — the merchant — from chargeback fraud. Once a transaction processes, your customers can’t get their money back unless you voluntarily offer refunds.

Is ACH Payment Processing Right for Your Business?

As a general rule, offering more payment options to your users is a good idea. Some customers prefer cash. Others want to use credit cards. Some like using the ACH network. This diversity of options is reason enough to add ACH payments to your system.

If you also sell big-ticket items, using the ACH network can help you save money. Instead of paying percentage-based fees (like with most payment options), each transaction on the ACH network uses a fixed price of 25 to 75 cents.

ACH payments also are ideal for recurring billing, including when paying your employees twice monthly, biweekly or monthly.

If you’d like to learn more about ACH payment processing and whether it’s a good fit for your business, schedule a free consultation with our merchant services team today.

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