The financial sector has changed in the fast-paced digital age. People are no longer controlled by checks and cash payments, because the electronic payment system has arrived. Businesses are increasingly turning towards electronic payment processes like ACH payments to meet the demands of customers. But some individuals asked several questions, such as how to accept ACH payments, how long do ACH payments take to process, how to send ACH payments, and many more. So, in this guide, we will provide a brief description of ACH payments which will answer all your questions and make you learn how ACH payments work.
What is an ACH Payment?
ACH is the “Automated Clearing House” and is also known as “Direct Payments” because the money transfer happens without using any check payments or credit card networks. ACH payment is the payment process that is usually used for monthly vendor payments and employee payroll. ACH payment is considered one of the fastest, cost-effective, and most reliable payment methods that helps businesses to manage recurring payments. This ACH payment process involves some participants, including the sender, ODFI, Federal Reserve Banks, RDFI, and the receiver.
How do ACH Payments Work for Businesses?
ACH payments are now essential for business, as they enhance efficiency and customer satisfaction. The ACH payment system connects customers, banks, and merchants digitally, which makes money transfer faster and more secure.
Step 1: Transaction Initiation
The payer sanctioned an ACH payment by providing the bank with all the details, including the receiver’s account number and routing number. This step allows the bank to verify the legitimacy of the payment.
Step 2: Batch Processing
ACH payments are processed by several batches rather than individual payments, which makes them cost cost-effective than other processes.
Step 3: Settlement
Banks verify all the information and the process of transactions, which ensures that the money transfers securely from one account to another.
Step 4: Funds Deposited
The receiver receives the money within 1-3 business days or on the same day, if ACH is used on the same day.
Step-by-Step Method to Send ACH Payments
Every business makes a payment to employees, vendors, or any contractors. If you want to do it through an ACH payment, then follow the steps.
- ACH Access: First of all, use a bank, payroll providers, or payment platforms to enable ACH payments.
- Get Permission: You should review that if the receiver authorizes the transaction or not, which may be through a signed form or digital approval.
- Send Payment: Now, you can make payments through the bank or any of the software.
- Wait for Processing: You have to wait for the processing of payments, as it takes 1-3 business days to clear the transactions.
How to Accept ACH Payments?
The ACH payment method is one of the best and most cost-efficient payment methods for collecting recurring payments, invoices, and subscriptions.
- ACH Merchant Account: To accept ACH payments, you have to open a bank account that supports ACH collections.
- Customer Approval: Customers need to authorize the ACH debit by an authorization form.
- Schedule the Payment: Make a schedule for accepting the recurring bills.
- Receive Money: After clearance of all the criteria, the money directly goes to the business account.
Several Benefits of Using ACH Payments in Business
Electronic payments like ACH payments offer several benefits to businesses. This process allows you to make effortless payments and allows for a hassle-free process experience.
Cost Efficient
The ACH payment process comes with a more affordable price than other payment processes, like domestic wire transfer. This is the best option for a business that frequently makes or receives payments. The businesses can save more money on transaction fees if their payment is recurring, like payroll.
Security
ACH payments are more secure than checks, as there is no chance of being lost in the mail. This process has reduced the risk of fraud, which is mostly associated with paper checks, because this payment process is authorized by an ACH form. This payment process increases the trust of clients, and they feel secure to do business with your company.
Convenience
Businesses can use ACH payments for vendor payments, which eliminates the risk of error and simplifies the payment process. This process also turned into a time-saving process for the business that depends on manual payment processing.
Processing Time
A paper check takes more processing time as it goes through an email, but an ACH payment is processed online, so it reduces the processing time. You will get additional benefits when you make payments through ACH, because banks prioritize ACH payments rather than paper checks.
Recurring Billing
ACH payment is the best option for the subscription-based business model. Because these business faces several problems while generating bills for their customer. The problems, including payment processing, have a high risk due to several transactions in one month; the customers may also forget to pay the bill, which leads to cash flow issues. Here, an ACH payment can help businesses overcome these problems by reducing the processing fees and getting all the bills paid on time.
Reduce Errors
This payment process eliminates the human errors that usually happen with paper checks. So, you don’t have to deal with unwanted mistakes, and this will save more time for other work.
Conclusion
In conclusion, we want to say that ACH payments are smart and evolving payment systems that provide relevance and customer satisfaction. We hope this guide will help you to use ACH payments for your business. If you want to know more about ACH payments, then you can connect to ACH customer support.