Streamline Your Payment Processes with ACH: The Secure and Efficient Way to Transfer Funds Electronically

Growing businesses need access to reliable and secure payment options. The larger you become, the more suppliers, providers, and other parties you will inevitably pay. Paper checks and money orders are no longer practical. First, they’re tedious and time-consuming. And second, they just don’t meet the always-on needs of the electronic money system we operate in today.

There is, however, a solution that’s been tried, tested, and proven for decades. Every small and medium-sized business will already have used it at some point. It’s just that you may not know exactly what it is. We are talking, of course, about Automated Clearing House (ACH) payments.

ACH transactions are an electronic payment option that enables the quick, secure, and reliable transfer of funds between banks. With ACH payments, businesses have access to a secure method for processing payments without the hassle of sending paper checks or waiting days for wire transfers.

Some 30 billion payments were processed through the ACH network in 2022, totaling $76.7 trillion.

What Exactly Is the Automated Clearing House?

The Automated Clearing House is a network of US financial institutions that facilitates electronic payments and money transfers between banks. The ACH system comprises various ACH operators, such as the Federal Reserve Bank and the Electronic Payments Network (EPN).

As a service, the ACH is an electronic payment system facilitated by the National Automated Clearing House Association (NACHA). It processes large batches of payments electronically between banks and other financial institutions. ACH payments are used for a wide range of transfers, such as payroll deposits, consumer bill payments, direct deposit of tax refunds, and electronic checks.

In addition to being secure, efficient, and cost-effective, they are also trackable in real-time, making it easier to reconcile bank accounts and verify the status of payments.

A Brief History and Evolution of the ACH

The ACH network was initially developed in the 1970s as an automated alternative to paper-based cheques. In the early days, it was used for large-scale transfers, such as tax refunds and Social Security payments. As technology advanced, it was adapted to include consumer bill payments and payroll deposits.

In 2006, NACHA added a new payment type called Same Day ACH, which enabled instant funds transfers. This had a few limits for some years, but in 2021, the NACHA rules were updated to allow for almost all ACH transactions to qualify.

In 2017, NACHA also launched the Secure Vault Payments service to enable secure payments between merchants and customers without requiring sensitive data exchange.

Today, the ACH network is used by over 10,000 financial institutions in the US to facilitate fast, secure money transfers between banks. With such far-reaching adoption, it’s been a simple solution for merchants to get onto. All of the banks offer it, and all of their payees’ banks can receive funds in this way.

In its contemporary version, the ACH is used by businesses of all sizes, from small mom-and-pop stores to large corporations. The system is incredibly robust and secure and has evolved into an integrated payment network that processes a variety of transactions quickly, securely, and reliably.

How Do ACH Payments Work?

As we’ve grasped above, ACH payments work by allowing businesses to send funds electronically between financial institutions. In a real-world hypothetical, that process would start with the initiating bank generating an ACH payment on behalf of the business.

Say, for example, you receive an invoice for $500 from a supplier. You then need to initiate a payment of $500 to be sent from your bank account to the supplier’s bank. To do this, you would generate an ACH payment on behalf of your business with your bank.

The originating depository financial institution (your bank) will then send the transaction information (including all relevant details such as beneficiary name and account number) to the ACH operator. This is usually done through a secure electronic file transfer.

The ACH operator will then process the payment instructions, verify that they are legitimate and valid, and then forward them to the receiving depository financial institution (RDFI) (your supplier’s bank). Their bank will receive the instructions and initiate a deposit into the account of the supplier.

Once processed, the ACH operator will send a payment confirmation to both banks and provide a unique code that can be used to track the payments in real-time. This is what makes ACH payments so secure and reliable. In most cases, these transactions go through in seconds.

Types of ACH Payments

There are several types of ACH payments, each providing different features and benefits. These include:

Direct deposit

Direct deposit lets you securely deposit payroll funds directly into your employees’ bank accounts. Say you want to deposit the payroll funds into your employees’ accounts on Friday. Instead of manually transferring these payments or having them cut a check, you can use ACH direct deposit to electronically transfer the funds and have them available in their savings account or checking account on or before payday.

ACH debit payment

The ACH network is also used for debiting funds from customer bank accounts. This includes one-time or recurring payments, such as monthly utility bills. With ACH debit, you can securely collect customer payments without manually entering their bank account details every time.

ACH credit payment

ACH credits let you send out regular payments like invoices and loan repayments quickly and easily. Simply specify the amount to be paid, the beneficiary’s name, and their banking information, and set up a payment schedule. The ACH network will securely transfer the credit transaction funds to their account on or before your specified date.

Same-day ACH payments

Same-day ACH allows you to process payments in real-time. This is especially useful for business owners who need to make or receive payments quickly. With same-day ACH, you can securely send funds within a few minutes and have them arrive in the recipient’s bank account within hours.

Secure Vault Payments

Secure Vault Payments allow you to process and complete secure financial transactions without exchanging sensitive information. This makes it easier for customers to pay online, as they don’t have to worry about their data being compromised.

ACH consolidation & disbursement

ACH consolidation & disbursement is a service that lets you easily process multiple payments at once. This eliminates the need to manually enter all the beneficiary details each time you need to send out a payment. You can also set up recurring payments for multiple beneficiaries, allowing you to efficiently pay invoices and loan repayments in bulk.

All ACH transactions fall into either credit or debit transactions. Deposits or withdrawals.

Differences Between ACH Transfers, EFT Payments, and Wire Transfers

ACH transfers, EFT payments, and wire transfers all let you send money electronically. However, there are some key differences between them.

ACH transfers use the Automated Clearing House network to securely process payments without having to manually enter beneficiary details every time. They are typically used for recurring payments or large batches of payments. Most commonly, ACH direct payments are used in a business-to-business context. Or business-to-employee.

Electronic Funds Transfer (EFT) payments are typically used for one-off payments and involve manually entering the details of each recipient. They tend to take longer than ACH transactions and can be more expensive, as there are usually fees involved in processing them. EFT payments are more common among peer-to-peer payments.

Wire transfers are processed by banks directly and involve transferring funds between accounts at different institutions. These transactions take place in real-time and are typically used for large sums of money. They come with higher fees than ACH transfers or EFT payments.

Benefits of ACH Payment Processing For Small Businesses

ACH payment processing offers numerous benefits to small businesses, including:

• Lower transaction costs compared to other payment methods, such as wire transfers
• No need to use credit cards, debit cards, or other physical items to process payments
• Easily processes large batches of payments with ACH consolidation & disbursement
• Securely sends funds within minutes using same-day ACH payments
• Eliminates the need to manually enter beneficiary details each time you need to send out a payment, helping to reduce administrative costs
• Quickly and securely collects payments from customers without having them provide their bank account information every time
• Streamlines loan repayments and invoice processing by setting up recurring payments for multiple beneficiaries
• Offers more flexibility and convenience for customers, as they don’t have to worry about their data being compromised.

Drawbacks of Using ACH Payments

Despite the numerous benefits of using ACH payments, there are a few drawbacks to consider.

• Standard ACH transfers typically take up to three business days for funds to post in the recipient’s bank account. Faster transfer speeds can incur fees
• ACH is a US system, and the participating banks are US banks, meaning international transactions are not as streamlined
• Some banks will impose transaction limits that merchants must work around to avoid higher fees or delayed processing.

How to Implement ACH Payments in Your Small Business

Setting up ACH payments for your small business is a simple process that can help you streamline payment processing. Here’s a step-by-step guide to get started:

1. Choose an ACH processor: Before signing up, research different providers and compare their fees and services to find the best option for you. Payment Depot is compliant with the National Automated Clearing House Association (NACHA) and should be on your list to review.

2. Set up your account: You’ll need to provide some personal information and bank details of the customers you plan to send payments to or collect payments from.

3. Integrate into your existing systems: After signing up, you’ll need to integrate the ACH processor into the system where you manage payments and invoices. This is done by connecting the ACH processor to your accounting software or payment gateway. Your payment provider can help you set this up.

4. Test: Try sending small payments to yourself and your team to make sure everything is working properly.

5. Start processing: Once you’re all set up, you can start sending out payments or collecting payments from customers with no hassle.

Get Started with ACH Payments Today

ACH payments are an efficient and secure way to manage payments for small businesses. With it, you can streamline your payment processing and easily scale up your business without worrying about costly fees or manual processing.

As the most widely used electronic payment solution in the US, this technology is only ever improving and expanding to meet the ever-changing needs of merchants. Adoption in 2022 was up 3% compared to 2021. There are no signs that that growth is going to stop.

To learn more about how to get the most out of ACH payments, contact Payment Depot. We help merchants save with membership pricing plans and flexible, scalable solutions that take your business forward. To learn more, get in touch with us today.

FAQs

What’s the cost of processing ACH payments?

The cost of processing ACH payments depends on the payment processor you choose. Payment Depot offers a flat fee structure with no hidden fees, making it an economical choice for small businesses.

Are there any limits to how much I can send or receive?

There are typically no limits to how much money can be sent or received through ACH payments. However, each bank may impose its own transaction limits. If you are setting up a new account, it is worth shopping around the banks to see which will meet your transaction volume needs.

How secure is ACH payment processing?

ACH payment processing is secure and compliant with the latest National Automated Clearing House Association (NACHA) safety standards. Payment Depot also offers additional layers of security, such as encryption and fraud protection, to ensure your data remains safe and secure.

What is the processing time for ACH payments?

Standard ACH transfers typically take up to three business days for funds to post in the recipient’s bank account. Same-day transfers and other faster solutions can incur additional fees.

In which scenarios can ACH payments be rejected?

ACH payments can be rejected if the account information provided is incorrect or insufficient funds are in the customer’s account. It’s important to double-check all details before processing the payment to avoid rejections.

What information do I need from my customers?

You will need your customer’s bank details, such as routing number, account number, and account holder’s name. It’s important to get permission from your customers before collecting or sharing this information. Thankfully, once you have it, it is safely stored, and you do not need to keep inputting this data.