ACH Payment Processing for Small Business – What Your Business Should Know

Ach Automated Clearing House Concept With Keyword People And Icons Flat Vector Illustration Isolated On White 201219120

Small business owners face endless challenges while starting out and often don’t have enough resources to implement the best technologies, such as with payment processing systems. As your business grows over time, you shift to better payment options, such as cards and electronic payment methods.

However, it’s time that you consider newer and more flexible payment methods apart from the usual checks, cash, and credit and debit cards. For instance, setting up automated and direct payment methods like ACH payments can significantly boost your company’s growth.

ACH payments are especially beneficial if you offer recurring transaction methods and monthly subscription plans, both of which are quickly trending retail strategies. These payment modes give you a competitive edge over your rivals, since you can offer something different from the usual cash, card, and check transactions.

What is an ACH Payment?

An ACH (Automated Clearing House) payment is a method of accepting payments by transferring the funds directly from one bank to another, meaning you don’t have to pay interchange fees through any card networks like MasterCard and Visa. If you use direct deposit transaction modes to pay your employees, you are already using an ACH payment system.

ACH Payment Processing enables your small business to process transactions faster and more securely, without using any cards, cash, checks, or wire transfers. The ACH payments method is used for making one-time payments, which ensures a higher level of security and safety. ACH payments are more commonly used for making recurring transactions.

Since the money moves automatically without writing any paper checks or initiating card payments, ACH transfers have made life easier and faster. However, to pay using ACH, customers need to authorize their billing merchant to draw the required funds from their accounts.

It means that customers need to provide their bank account details and routing numbers for their checking account, and then sign an agreement with the biller to give their authorization. Generally, ACH payments are established using either online or paper forms, but the process might also happen over the phone, especially since the pandemic outbreak.

Common Uses of ACH Payments

Some of the common usages of ACH are found in the following –

  • A consumer paying a merchant or service provider.
  • A business paying a dealer, wholesaler, or supplier for the products purchased (business-to-business or B2B).
  • A customer transferring funds from one bank to another.
  • An employer paying an employee by depositing the salary directly to his/her checking account.
  • A taxpayer transferring the funds to the local organizations or the IRS (Internal Revenue Service) online.

Benefits of Using ACH Payment Processing

The biggest advantage of paying with ACH is convenience and speed. Moreover, since all or part of the process is automated, it is much easier to make the transfers. It eventually saves your time in tracking billing cycles or other aspects. Overall, the benefits of ACH payments include –

  • Forget Payment Dates Without Worrying. Customers don’t need to remember payment dates, and hence won’t miss any. It ensures that they pay their bills on time in case of recurring payments, freeing you from headaches. It also saves them from being charged a fine.
  • It’s Eco-Friendly. The ACH payment process is totally electronic, and customers won’t need to write out paper checks. This is why it is also completely environment-friendly.
  • Efficient Payment Tracking. It is much easier to track payments in ACH transfers since the payee’s name is reflected on your financial software or bank statement.
  • Lower Transaction Fees. ACH payments usually have much lower transaction fees compared to credit card processing fees. For example, for a $500 transaction, the following processing fees can be expected across different payment modes:
    • Credit Card: $12.74 (including 2.49% fee charged on $500, along with a $0.29 transaction fee)
    • ACH Transfer: $0.60

Clearly, the credit card charges can really add up to a heart-wrenching amount as your business scales!

  • Flexible and Convenient. ACH transfers, as mentioned earlier, is convenient for both the consumer and the merchant. One doesn’t need to write out paper checks, generate paper invoices, or make bank trips. In short, customers can enjoy increased flexibility while making ACH payments.
  • Automation Everywhere. Using ACH transfers, you can set up a recurring billing schedule, after which there’s no need to remember billing dates. So far as your buyer has authorized the set billing schedule, you are good to go!

You can use a payment processing program, to create and send invoices to your customers automatically. In brief, using ACH transactions, you can enjoy automated invoicing, payment tracking, and of course, the payment!

  • You Get Paid Faster, Too. You get paid faster with ACH, since there’s no question of forgetting dates. Besides, since the payment process is automated and the payment amount is pulled from the buyer’s account automatically with their prior approval, you are more likely to get paid, provided that the accounts are well-funded.
  • You Enjoy Preferred Funding. Banks don’t give equal priority to all checking account transactions. Although policies differ from bank to bank, typically, they will process electronic payments first.
    • For example, let’s assume that a consumer has $2000 in his/her checking account. Now, if you process an $1100 ACH payment and another merchant processes another $1000 paper check on the same day, then the bank will approve your payment first, and you get paid. While the other merchant receives a bounced check notice!
  • Fewer Disputes. Using ACH, you can have only three possible disputes –
  1. The amount authorized is wrong or miscalculated. In this case, a refund is usually initiated from the biller’s end (if the amount charged is higher than that authorized).
  2. The payment is processed earlier than the due date agreed upon.
  3. The payment is not authorized at all.

Other than that, there are hardly any disputes associated with ACH transfers. However, with credit card processing, there can be a huge list of disputes occurring due to various reasons.

Besides, with an ACH transaction, you receive a payment failure notification immediately. And ACH ensures you much quicker access to funds. However, credit cards have a much higher rate of payment failures, which is why the funds are held up by the bank for days or even weeks!

  • ACH is More Secure. Finally, ACH transfers are one of the safest and most secure payment methods since the confidential information of the customers is transferred directly into a secure and encrypted environment.

Since ACH payments are transferred electronically, there are no multiple hands involved as found in paper check exchanges, thus mitigating all identity or data theft risks!

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