How To Accept ACH Payments
See What Options Your Business Can Use To Accept ACH Payments Through Your Bank Account Or Through QuickBooks
More often, merchants are looking for less costly alternatives to credit cards for their business. With numerous options on the market, more businesses are trying to see if ACH payments are a good replacement for credit cards.
Accepting ACH (Automated Clearing House) payments is a relatively easy, simple, and inexpensive process, and it can be conducted through a number of mediums. Beyond the cost savings for you, many consumers enjoy having a set of options to choose from when it comes time to pay their bill.
ACH payments carry low overhead fees because they are conducted electronically and oftentimes replace paper checks. ACH payments are a kind of EFT (electronic funds transfer) occurring between financial institutions, and funds can be sent and received through this payment medium.
Why businesses should consider offering ACH payments
Automated clearing house payments are oftentimes used for direct deposits to pay employees, or they can be used to pay for recurring services, such as utility bills. ACH payments are applicable to only online transactions in the (B2B – business to business) space. The enticing low cost is making businesses want to switch to ACH payments (the average cost per transaction is under $0.40), as they are cheaper than the average credit card fees.
But what are ACH payments and how do they work? What does it look like in the real world, and how does it differ from other common forms of payment? Most importantly, why will the switch to ACH transactions benefit your business astronomically? The criteria defining what makes an ACH payment an ACH payment is as follows: an ACH payment must allow businesses to receive an electronic payment directly from a consumer/buyer’s checking account. Through some processors and integrations, businesses can see the ACH payment reconciled in QuickBooks automatically, saving them time when it comes to bookkeeping.
ACH transactions are more efficient than their counterpart forms of purchase because large numbers of ACH payments can be batched and subsequently processed together. In addition, they can be processed as one-time payments or automated to run on a recurring schedule, meaning that no further work is required once you’ve set up the ACH payment acceptance system.
ACH payments differ from ACH direct deposits, but they utilize the same processing network for optimal efficiency. ACH Direct Deposits are generally used for payroll costs, tax refunds, annuities, interest payments, and anything else having to do with an individual rather than a business. ACH Payments are conducted between businesses. They can be classified as either ACH Credits or Debits, and they both have differing functions. ACH Debits withdraw funds from your customer’s account and are used on a recurrent basis to pay for things like subscriptions or memberships (for example, ACH Debit Payments would be utilized to pay for services such as utilities, rent, car payments, mortgages, gym/health club memberships, and insurance premiums).
ACH Credit Payments, on the other hand, push funds from your customer’s account to yours for one-time payments, like a singular consumer purchase of goods or services from your business. Examples would include contracting jobs and other one-time gigs; freelance workers can even benefit from implementing ACH payment systems into their business model.
Automated clearing house payments occur at the domestic level because each country has their own processing system – here in the US, the ACH Network is the accepted payment system. NACHA, formerly known as the National Automated Clearinghouse Association, is the ruling body in charge of the ACH network. However, the actual processing of ACH transactions is handled by the Federal Reserve and Clearing House Companies. NACHA has a distinctive set of rules and regulations that must be followed by every business using ACH payment technologies. ACH transactions are superior to paper checks, credit/debit card transactions, and wire transfers as forms of payment.
How ACH payments compare to paper checks
ACH payments blow paper checks out of the water in terms of their comparative efficiency, versatility, and ease of use. In addition, some other advantages of accepting ACH payments over paper checks give you the overall ability to better customize your business model.
Some of these advantages include saving time, saving on paper and ink, increasing the security of transactions conducted across business lines, setting up automated, recurring payments that never show up late, creating an online record that can be synced with other software or applications, and being made aware of a transaction’s status faster (because ACH payments are electronic, a notification can be sent directly to your phone informing you about whether a payment went through or not). In addition, banks frequently prioritize the funds availability of ACH payments as opposed to paper checks.
ACH transactions also bypass the credit card networks stealing money from your pocket through bypassing wholesale interchange and assessment fees – they cut out the middleman in any transaction and are therefore much less expensive to conduct than credit card purchases.
The same principle applies to debit cards – while both ACH debits and debit card purchases withdraw money from a customer’s account, debit cards are prone to the same kinds of fees as credit cards due to their being processed via the same networks. ACH transactions are therefore superior to credit and debit card transactions because they factor in long-term cost savings for your business, in opposition to the flat rate you’re being charged to process debit and/or credit card transactions.
By using ACH payments and transactions instead of credit card or debit card payments, your business will save money per transaction in the long term. In addition, ACH transactions are relatively final compared to debit and credit card transactions because the set of rules surrounding both differ greatly. The rules surrounding ACH transaction reversals and chargebacks are much stricter than those surrounding credit and debit card reversals, and there are only three instances in which your customer can initiate a transaction reversal for an ACH payment.
Chargebacks are not impossible with ACH payments, but the instances include dealing with a revoked (or unauthorized, meaning it was never approved in the first place) transaction, dealing with a transaction processed at an earlier date than its authorization, and dealing with a transaction that is either larger or smaller than the authorized payment amount. The time limit to initiating a reversal for an ACH payment is only 90 days (and sometimes 60 days after the transaction shows up in your bank statement), whereas with a credit or debit card the reversal period is generally closer to 120 days. Contrary to ACH transactions, a customer can ask for a chargeback or reversal on their credit or debit cards simply because they were unhappy with the quality, timeliness, or efficacy of the products or services provided. However, any chargebacks are less likely to occur compared to when customers pay via credit card.
Some of the other advantages provided by using ACH payments over debit/credit card transactions include having a lower cost to process, converting recurring customers to a less expensive payment processing method. There is another added benefit, which is reducing the number of declined recurring payments due to expired debit or credit card information, making it harder for customers to initiate chargebacks or reversals on transactions they have done with your company (in addition to reducing the time period during which a chargeback or reversal can be requested by a consumer).
Some consumers refuse to use debit or credit cards, but almost everyone has a bank account. Reach the portion of your consumers without a debit or credit card and make the switch to ACH payments today. Two final advantages include less fraud exposure and the chance to use a payment method not offered by your competition in order to save money and time.
Another question you may have is in regard to wire transfers and if they are the same as an ACH payment. Wire transfers are another kind of electronic funds transfer occurring between two parties, but their respective applications in the business world are very different. Wire transfers are used for payments both higher in value and smaller in number than ACH transactions.
This means that while wire transfer payments are not limited to domestic use, they are also irreversible and time-critical. ACH transactions are grouped together and processed in batches for increased efficiency and time savings, but wire transfers are processed as individual, real-time transactions. They offer no support for automation of the payment process, have an expensive fee associated with their use, and are intended for one-time payments to presumably extra-important parties.
The fee associated with a wire transfer is there because of the convenience it offers, but in addition to being expensive to conduct wire transfers also lack the versatility and applicability of ACH transactions. The main advantages of conducting ACH payments over wire transfer payments are oriented around saving money for both parties involved – ACH payments are free for customers and less expensive for merchants, while the same cannot be said of wire transfers.
What kind of businesses are ACH payments suited for?
So, with all of those cited advantages over paper checks, credit/debit card transactions, and wire transfers, how can your business accept ACH payments easily and efficiently?
ACH payments can be thought of as “e-checks”, since they serve the same function as an electronic check. More often than not, the two terms are used interchangeably except when referencing high-risk merchants – the reasoning for this is that high-risk businesses often have a hard time finding a merchant account to use for credit and debit card payment processing.
Some high-risk businesses are not eligible for traditional ACH processing but might be able to qualify for an e-check processing system mitigating some of the risks associated with chargebacks and reversals initiated by consumers. In general, these kinds of systems work by implementing a type of middleman.
For example, a common technique employed by high-risk businesses wishing to utilize the framework offered by ACH transactions is setting up their e-check processors with an aggregated account to process and clear the funds, followed by submitting a normal ACH transaction to your business’ bank account on your behalf.
Some ACH payment providers charge a flat fee ranging from around $0.20 cents to $1.50 per transaction; others charge a percentage-based fee (from around 0.5% to 1.5% with variances for high-risk merchants). Merchants with larger average transaction sizes should look to per-transaction flat rate fees for a cheaper option to percentage-based pricing.
But what are ACH payment providers? ACH payment providers include companies that can help you begin accepting ACH payments, such as merchant account providers/credit card processors, business bank account providers, dedicated ACH processors, accounting software providers, and all-in-one processor/payment gateway companies (as BNG Payments).
ACH payments can oftentimes be added to an existing service package for no additional fees, but your inquiry is required if you want to benefit from free services. Banks won’t mention them to you, but they are usually an option – call your financial institution today and inquire about implementing an ACH payment system and you may be surprised with the answer you receive. Although there may be a separate underwriting process for establishing the ACH payment system initially, no more fees should be paid to your bank after that.
So, how are ACH payments processed once they have been conducted or requested? In order to properly process ACH payments they must firstly be authorized, and important customer information needs to be collected. Obtaining the name of your customer along with the details of their financial institution (like their routing and account numbers) is necessary for payment authorization.
The ACH network offers three ways to process payments: check scanners can be used to transform paper checks into digital ACH transactions, and checks can be run through the scanner in order to deposit them remotely. Virtual terminals are useful for processing keyed-entry payments, such as those made via telephone or mail order. Account information can be entered into the computer in order to process payment information. Website payments are the final method of ACH transactions approved for use in the United States; account providers can establish payment gateways via webforms (used to collect ACH payments within your website).
In addition, you may also need a way to verify the account information of your customer, especially if your ACH transactions occur via webform. A common method of establishing the veracity and verifiability of the account includes setting up a micro-deposit or two to ensure the account exists (for example, you might deposit $.03 and $.12 into a customer’s bank account to make sure it is a real account, and when the deposit clears the funds can be withdrawn once again).
The time taken to process ACH payments is not long at all; it allows for same-day payment and receival because ACH payments are batched three times per day. If your business is looking for a new payment methodology to boost time and costs savings, look no further than establishing an ACH transaction system.
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