Understanding ACH Payments
If you’ve ever received a paycheck through direct deposit or paid a utility bill directly from your bank account using your account and routing numbers, you’re already familiar with ACH payments as an individual. But what about accepting ACH payments as a business?
What does ACH stand for?
ACH stands for Automated Clearing House. The Automated Clearing House is a centralized US financial network for banks and credit unions to send and receive electronic payments and money transfers.
What are ACH payments?
ACH payments are transfers of funds between accounts at different financial institutions, using the ACH network.
The ACH network is administered by the National Automated Clearing House Association (NACHA), an independent organization owned by a large group of banks, credit unions, and payment processing companies. NACHA financial institutions provide a way to directly transfer money between accounts at different banks, without the use of paper checks, wire transfers, credit cards, or cash.
ACH is an inexpensive, reliable, and secure way to process payments. It allows customers to purchase high-priced items without worrying about credit card spending limits. And for specific types of transactions and recurring payments, ACH transfers are an easy way for businesses to reduce the time and money spent on processing transactions.
ACH lets you accept payments from customers with a US bank account. ACH Direct Debit is a reusable, delayed notification payment method. It can take up to 4 business days to receive acknowledgement of success or failure. Because ACH Direct Debit isn’t a guaranteed payment method, there’s a risk of failed payments and disputes.
What are the benefits of accepting ACH payments for my business?
ACH payments are not a logical or convenient payment method for very quick transactions, such as buying a cup of coffee, because it takes time to send and receive ACH transfers and authorize payment. Faster payment methods like card payments and digital wallets allow businesses to authorize purchases in seconds, which is preferable for most day-to-day transactions.
ACH transfers are most often used in situations where, in the past, customers might have paid with a paper check or it is known that the customer will be with you for an extended period of time.
1. Cost and Time Savings
ACH payments have several advantages over paper checks and credit cards. They’re electronically transmitted, which means they’re faster than paper checks and less likely to get lost in transit. Credit and debit card payments are more costly than ACH payments. For businesses, this can add up to significant savings over time.
2. Security
NACHA has strict security regulations for any institution or organization involved with ACH transactions. This includes banks, businesses, and third-party processors who work with ACH payments. Among NACHA's rules is a requirement that all sensitive information (e.g., bank account numbers) needs to be encrypted. As a result, ACH payments tend to be quite secure against fraud.
How are ACH payments different from accepting credit or debit card payments?
1. Your customer must authorize the payment terms.
2. Bank accounts must be verified.
Click here to see what is looks like from the customer's perspective to set-up ACH payments.
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