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September 14, 2022

What Is an ACH Transfer and How to Accept ACH Payments

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Getting paid as a small business owner can be tricky, especially if you’re primarily online. It can also get expensive. Automated clearing house (ACH) payments are a way to get paid seamlessly, quickly, and relatively cheaply. This article will show you how to accept payments via ACH.

What Do We Know about ACH, and Why Is It Important?

ACH stands for Automated Clearing House, a centralized payment processing network used by banks, credit unions, and other institutions to send and receive money.

Such operations are easy to set up. You may accept ACH payments through your bank if you have a business checking account. Alternatively, you may sign up with a third-party processor (TPPP) to accept transfers faster in exchange for a small fee. ACH transfer is a popular electronic bank operation used by consumers for direct deposit or automatic bill payment.

Accepting ACH transactions is beneficial because it is a cost-effective way to process customer payments, mainly if you serve other businesses regularly. If your business is a retail store that handles a lot of cash and credit card transactions, ACH may not be able to help you. But if you’re in a service business, cater to other small businesses, or receive recurring payments regularly, then offering ACH could be a great move.

Types of ACH Transfers

Such transfers can make life easier for both sender and recipient. Gone are the days when you had to write and wait for a check to clear or when you had to pay your electric company bill before the due date.

ACH transfer allows you to send and receive money conveniently and securely without leaving your home. The ACH network processes two types of ACH transactions: ACH Debit and Credit.

  • ACH credit is a payment type used in bill payment services. With this transaction, you give your financial institution permission to send money to a payee, such as a utility company or car loan provider. Your bank account details remain with your financial institution and are not sent to the payee.
  • With ACH debit, you set up a transaction with the payee. You send your payment details (including account and routing numbers) to the payee in this situation. Such a type of digital payment entails more risk than an ACH loan.

Both types of electronic payments provide the same level of convenience and economy. Now that you have this basic knowledge, it’s time to learn how actual digital system work.

What Is an ACH Transfer and How to Accept ACH Payments


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How Do ACH Payments Work?

ACH payment is a wire transfer sent through a bank, credit union, or TPPP (often a credit card processor). You may also use ACH to receive funds from a client.

Often, businesses that wish to accept recurring ACH payments from clients can do so using their standard bank accounts. They provide account details to the customer, who initiates the payment and pays a small fee.

You may accept free payments through a bank or credit union, but you will often be charged a fee of $5 to $15 per incoming transaction.

A third-party payment processor might make more sense for organizations that plan to accept ACH payments more frequently or want to allow their customers to set up systematic procedures without paying fees. Your organization will be charged a small fee, just like you would if you accepted a credit card.

How to Accept ACH Payments?

The easiest way to accept ACH payments is through a bank. You must create a corporate bank account and provide the client with your bank details. You can choose a third-party payment processor. Here are the steps to accept payments using a third-party service:

  • Choose a provider: if you don’t already accept credit cards, spend some time researching third-party payment processors. Find one that allows you to easily accept payments through a point-of-sale system or other payment gateways.
  • Sign up: after choosing a payment processing company, you can start setting up. It may require you to create a new account, or you may need to contact your credit card processor to set it up specifically to accept ACH payments.
  • Get your payment details: when you set up ACH payments, write down your payment details. They are similar to the account and routing number in a traditional bank account, but if you use a third-party processor, it is for your merchant account.

The final step to accepting is transaction processing. You may need to provide your customers with their account information so they may send you a payment. If you use TPPP, you can get your customer’s account details and initiate transactions on your side.

ACH Transfer vs. Wire Transfer

ACH transfer and bank transfer are not the same things. While both transfer money from one bank account to another, there are differences in the exchange methods and speed, cost, and security.

ACH transfers happen in batches, are almost entirely automated, are processed through a central clearing house, and can take one to several business days.

Bank transfers manually move money from one account to another under a bank employee’s direction and happen immediately. Bank transfers use the bank as a direct intermediary between account holders.

Wire transfers are more expensive than ACH due to their one-time nature and the need for manual intervention. However, bank transfers can have a distinct advantage because money is transferred immediately. The downside of this convenience is that bank transfers cannot be reversed and are, therefore, generally considered less secure than ACH.

Main Benefits of ACH Transfers

ACH transfers offer several benefits for businesses of any size or industry. Compared to older payment methods such as paper checks, ACH payments are environmentally friendly and a more convenient transaction. But there are also other benefits:

  • Lower costs: ACH transfers have lower transaction fees than other electronic payment options, such as credit and debit card transactions. The processing fee is also lower than virtual payment platforms such as Venmo or PayPal.
  • Safety check: writing continues to be the most fraud-prone payment method, according to the AFP 2021 Payment Fraud and Enforcement Report. ACH requires verification through the processing center. An ACH check may provide a customer’s checking account history.
  • Convenience: The automatic payments process ensures that the business receives the money on time and saves customers the hassle of worrying about missed payments. It also eases the burden on the consumer – reminders to send physical checks are time-consuming and require constant reminders.

Check payments have dropped from 40 billion in 2000 to 20 billion in 2018. Consequently, the annual growth rate of ACH transactions increased to 17.4% in 2021, their best year ever.

Some Difficulties Related to Payments

ACH transfers are convenient but not perfect. There are potential downsides when using them to transfer money from one bank to another, send payments, or pay bills.

  • Transaction limits: many banks limit the amount of money you can send through this transfer. There may be transaction, daily, monthly or weekly limits.
  • Too frequent savings transfers can result in a fine: savings accounts are regulated by Federal Reserve Regulation D, which limits some types of withdrawals to six per month. If you exceed this limit with multiple transfers of ACH from savings to another bank, you may face excessive withdrawal fees.
  • Timing matters for ACH transfers: timing matters when you decide to send an ACH transfer. There may be a deadline by which you need to receive the transfer for it to be processed the following business day.

In most cases, money transfer apps do not charge fees for sending money to friends and family, but some may charge a 3% processing fee when paying by credit card, so read the fine print.

Final Words

ACH transfers are a secure and convenient payment method that offers significant savings on large transactions and recurring payments, especially compared to credit cards and bank transfer fees. With so many options, choosing a merchant to process is an important decision for businesses of any size.

Considerations regarding the type of business, amount, type and volume of transactions, and customer demographics will determine the best match. Many vendors offer multiple solutions, and finding the best fit for your business helps manage costs and delivers a seamless customer experience.

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Author: Charles Lutwidge

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