ACH Processing Basics
Why Businesses Use ACH Processing
Businesses can collect payments from customers in a variety of ways, but some ways are better than others. For many businesses, ACH is a good option (or it’s at least worth looking at).
Basics of ACH
ACH payments are electronic payments. Funds move from your customer’s checking account to your business account, generally over two to three business days. If you’re familiar with “e-checks” or monthly recurring billing from a checking account, you’ve probably already seen ACH in action.
The name ACH comes from the Automated Clearing House network, which handles the logistics of these payments. Banks (and their computers) coordinate to move money from one bank to another, and most of this activity is invisible to businesses and consumers.
To accept payments via ACH, businesses need to use a merchant account that can handle ACH payments – most of them can. Customers provide their checking account information (account number and routing number), and that information is used to create the payment.
Benefits of ACH
Why would a business process payments with ACH? The main benefit is cost savings, along with the benefits that come with other electronic payment methods.
Low fees: ACH is a relatively inexpensive way to accept payments. When compared to credit cards, ACH processing almost always costs less. Payments typically cost less than one dollar (perhaps $0.25 to $0.55 per payment), although costs vary from provider to provider, and depend on whether or not you also pay a monthly fee. Monthly fees are around $10 to $25 per month.
Easy for businesses: once a payment is set up, there’s little or no action required from the business. Customers might even enter their own payment information, and recurring payments continue to come in electronically month after month. There’s no need to open mail, apply payments to the right account, and deposit checks in the bank.
Variety of ways to accept payments: businesses can take payment by ACH in a variety of ways. Customers can provide checking account information online, on the phone with a customer service representative, or on an old-fashioned paper form. Somebody just needs to input that information into a computer, and the payment can take place.
Easy for customers: customers also enjoy working with businesses that take ACH payments. Instead of opening a bill every month, writing a check, finding a stamp, and getting the bill into the mail on time, customers can automate their payments. Unlike credit cards information, which needs to be updated as cards expire or account numbers change, checking account numbers rarely need updating.
Few errors: ACH payments can keep errors to a minimum. Payment systems attempt verify that accounts are set up correctly, and you only need to set it up correctly once – after that, any recurring payments will be made successfully, and there’s no monthly opportunity to make a mistake.
Safe and secure: payment systems are safe to use and minimize fraud – although businesses always need to monitor their accounts more closely than consumers do due to increased risk with business accounts. Information is encrypted with any reputable payment processing provider, so it’s hard for thieves to steal your account information – or your customers’. Plus, there are no checks sitting around to get “peeked at.”
ACH payments are not 100% perfect. If you’ve got more time than money (and margins are tight), you might be better off handling checks yourself. But the cost is so low that it’s hard to imagine many situations where a business has meaningful volume and doesn’t come out ahead using a payment processor.
Keep in mind that electronic payments are not instant and are not guaranteed – unless you sign up for (and pay extra for) additional services. Just like a bad check, an ACH payment can be reversed if a customer has insufficient funds. On the bright side, it is not as easy for customers to reverse an ACH payment as it is to file a chargeback with a credit card provider.
How to Start Using ACH Processing
If your business is ready to take payments by ACH, it’s just a matter of signing up with a payment processor. Start by asking your local bank or credit union where you have existing business checking accounts. They might be affordable due to the funds you have on deposit.
Numerous online services also offer ACH processing, and those names are easy to find with a simple search. They all have pros and cons, so you’ll need to evaluate the service model and pick the one that fits your business the best. Look at the following:
Fee structure: are there monthly fees? If so, does that result in a lower per-item fee than the competition? Depending on the volume of transactions in your business, find out when you’ll break even by paying a monthly fee.
Other services: you might be ready for more than just ACH payments. Can you accept credit cards with the same merchant account? Many payment processors can do both, and they might bundle these services together (so you’ll save money if you do it all with the same provider). Does the provider offer check verification services, or will they guarantee that payments will never “bounce”?