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

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Small business owners face endless challenges when starting out and often lack enough resources to implement the best technologies, such as payment processing systems. As your business grows, you shift to better payment options like cards and electronic payment methods.

However, it’s time to consider newer and more flexible payment methods in addition to 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 payment processing is especially beneficial if you offer recurring transaction methods and monthly subscription plans, 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 ACH Payment Processing?

An ACH (Automated Clearing House) payment processing accepts payments by transferring the funds directly from one bank to another. You don’t have to pay interchange fees through any card network like MasterCard or Visa. You already use an ACH payment system if you use direct deposit transaction modes to pay your employees.

ACH Payment Processing enables small businesses to process transactions faster and more securely without using cards, cash, checks, or wire transfers. The ACH payment method is used to make one-time payments, which ensures higher security and safety. ACH payments are more commonly used for recurring transactions.

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

Customers must 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.

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

Benefits of Using ACH Payment Processing

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 you 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 won’t miss any. It ensures they pay their bills on time in case of recurring payments, freeing them from headaches. It also saves them from being charged a fine.
  • It’s Eco-Friendly. The ACH payment process is electronic; customers won’t need to write 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 than 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 a 2.49% fee charged on $500, along with a $0.29 transaction fee)
    • ACH Transfer: $0.60

The credit card charges can add up to a heart-wrenching amount as your business scales!

  • Flexible and Convenient. As mentioned earlier, ACH transfers are convenient for consumers and merchants. One doesn’t need to write paper checks, generate invoices, or make bank trips. In short, customers can enjoy increased flexibility while making ACH payments.
  • Automation Everywhere. You can set up a recurring billing schedule using ACH transfers, after which there’s no need to remember billing dates. You’re good to go as long as your buyer has authorized the set billing schedule!

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

  • 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 automatically pulled from the buyer’s account with their prior approval, you are more likely to get paid, provided 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, they typically 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 will 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 will be processed earlier than the agreed-upon due date.
  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 number of disputes occurring for various reasons.

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

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

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

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