Like e-check payment processing, the payer in an ACH transaction begins the transaction while the payee authorizes the payment. Similar to a debit card, where funding is made directly from the payer’s bank account, ACH differs in that money settlements are made directly into the recipient’s bank account.
Larger institutions primarily process ACH payments for their debits or credits. Consumers will recognize these transactions as what is used to make a payment towards a credit card or utility bill. Most companies, including many small business payroll solutions, use the ACH network to debit their employees when making payroll transactions. ACH transactions are historically very safe because payments are only authorized if the entire transaction amount is available.
The creation of the ACH network was seen as replacing traditional checks with a paperless solution sent between member organizations. Managed by the National Automated Clearing House Association (NACHA), the ACH network’s member institutions administer the rules and regulations. Due to this tight regulation, NACHA has relatively strict requirements for ACH members, limiting the number of returned payments, bounced requests, and other payment problems that the electronic check industry does not take as much concern with.
How the Automated Clearing House Works
ACH payments are relatively seamless for businesses or customers looking to make paperless payments. To start the ACH process, the following information will need to be provided by the payer to the payee.
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- Payer’s financial institution’s name
- Type of account held at the financial institution
- Financial institution’s routing number
- Payer’s account number
Both banks and credit unions can make ACH payments. Once the Payee confirms account information, debits can be sent (such as direct deposit payments), or credit can be accepted (such as utility bill payments) from the Payer’s registered account. Many ACH transactions focus on monthly bills, but accepting one-time payments is also viable.
Through the ACH network, payments are initiated or requested by one party and confirmed by the other. Transactions are sent between member financial institutions through the centralized financial network, routing funds from the payer to the payee using both parties’ information. Payments are usually sent once per day and take a couple of days to be received in the payee’s bank account.
The low-cost, low-risk nature of ACH transactions is the reason why over 100 million ACH transactions are handled through the network daily for large corporate clients and small business owners.
ACH Payment Processing Times
ACH Payment Processing time typically takes 3-5 days. Settlement times can differ between banks depending on how fast they send ACH credits and how they handle ACH debits. Credit card payments generally take two days from authorization to settlement at the merchant’s bank. Most financial institutions will clear payments received through ACH in a shorter time period than paper checks deposited at the bank.
Starting in 2016, Same Day ACH was implemented to speed up the ACH payment time. The ACH credit process has become much faster, with three different windows available for sending payments. While payments sent will be made quickly, recipients will not necessarily have the same abilities. ACH debits are still under a 2-day wait period, so payers can stop transfers if needed. These new regulations can speed up the ACH time by half to one and a half days.
Benefits of ACH Recurring Payments
Businesses using ACH payment processing services have realized that it can be one of the best alternatives for accepting direct payment. This is especially the case for subscription and recurring payments.
- Lower Fees: Accepting credit or debit cards can cost merchants a discount fee on top of the transaction fee. Using a recurring ACH processor, merchants can save money by avoiding discount fees and paying a single transaction fee, regardless of the payment size or billing frequency.
- Convenience: Unlike accepting mail or in-person checks, ACH debit payments are paperless. This can help reduce the hassle of money management with less paperwork or no need to deposit each check the payees receives.
- Automated: Merchants can set up clients to automatically make monthly payments with an ACH rebilling service. Without following up with customers or accepting their monthly payments, ACH will be billed at the same time every month.
ACH for Debit Payments
Customers using ACH to either receive or make payments tend to prefer it once they understand the process. Customer benefits include:
- Paperless: Controlling most payments through a computer or mobile app, clients do not need to send in payments physically. This reduces costs for the customer without having to print checks or pay for postage when payments can be handled at no cost online.
- Automated: Similar to one of the reasons why merchants prefer ACH, setting up recurring payments makes it much easier when customers do not have to remember what time to make their monthly payments. This can help customers save money by avoiding any late payments or delinquent fees with an automated billing program.
While many customers prefer to make payments using their debit or credit cards, ACH is still widespread. Customers are almost always familiar with ACH since so many utilities, service providers, and payroll companies use it as their only means of payment.
High Risk ACH Processing
Most payment processors, besides a third party processor, cannot help higher-risk businesses secure ACH payment services. ACH is an ideal solution for businesses that can experience trouble finding merchant services because they require recurring billing services or want an additional payment solution with more resources to offer customers.
Using a high-risk ACH payment processing service will allow merchants to protect themselves from potentially fraudulent transactions that can curb the growth of a business. By pursuing an ACH, merchants can tap into one of the lowest-cost solutions thats convenient for customers and merchants alike.
Start Accepting Direct Payment with ACH Today!
Partnering with Allied Payments provides merchants access to a low-cost ACH solution for accepting payments. Used by many businesses as an alternative means of payment, it can help significantly reduce the problems or hassles of billing customers with a credit or debit card. Customer demand will follow as the resources surrounding the ACH network continue to improve.
Whether you operate a large corporation or small business or the business model you use, merchants are encouraged to reach out and speak to one of our ACH payment experts. We will happily review the options and pricing plans for businesses starting their ACH services and help you save time and money.
