ACH, which stands for Automated Clearing House, is a type of network mainly used to transfer money electronically between banks in the United States. All ACH payments are systematically run and monitored by an organization known as NACHA that stands for National Automated Clearing House Association. They are also often mentioned as the ACH scheme or network by others.
The ACH network has successfully handled countless payment processing since 1970. ACH moved financial transactions valued at more than $61.9 trillion in 2020, which indicates a total growth of at least 10% compared to the last year. All of these transactions are made up of the transactions made by the consumers, government agencies, international payments, and businesses.
What is an ACH Payment?
ACH payment is a form of bank payment that is made electronically in the United States. All of these payments are made through the ACH network instead of passing through the card network like Mastercard or Visa. ACH payments are also commonly known as ACH transactions or ACH transfers.
There are currently two major types of ACH payments: direct deposits and direct payments. The first category of ACH payment is the direct deposits manage all types of deposit payments ranging from businesses and government to consumers. This would cover transactions such as employee expense reimbursement, payroll, tax and refunds, government incentives, interest payments, and annuities. The second category, which is Direct Deposit manages the use of any type of funds for making payments that are done by organizations and individuals.
Cost for ACH Payments
According to the information provided by NACHA (which, as mentioned previously, the organization that is in charge of ACH transfers and payments), the average transaction fee for a single ACH payment is 11 cents. However, there are also several factors that can have some impact on the transfer fee on each transaction.
For instance, the number of transactions that you need to process may have a significant impact on the transfer fee. The reason for this is that the higher the amount of payment that you need to send, the lower the transfer fee for each of your transactions will be. This is due to the variation in the types of fee structure that you are allowed to use.
- Flat Fee – $0.20 to $1.50
- Percentage Fee – 0.5% to 1.5%
- Monthly Fee – $5 to $30
- Batch Fee – less than $1
- ACH Return Fee – $2 to $5
- ACH Reversal / Changeback Fee – $5 to $25
By now, you should be able to have a slightly detailed understanding of what the ACH payments are all about. Next, let’s take a closer look at how you can set it up for your business by following a series of simple steps.
How Do I Set Up an ACH Payment Method for My Business?
There are some simple steps that you need to follow if you need to start accepting eCheck payments from your customers. The first step is to open up an ACH merchant account. This account will help you to use the ACH network that will enable you to withdraw money directly from the bank accounts of your customers.
In order for you to open up a merchant account, you will need to provide some information such as the total number of years your business has been operating, the federal tax ID, as well as your expected processing volume. Please keep in mind that this process may require a few days before you can have your merchant account approved.
After that, you will need to ask your customers for authorization. ACH billing needs authorization, and just like how a customer needs to authorize you to cash a regular paper check by putting their signature on it, they would also need to authorize you to allow you to withdraw their money from their bank account. Your customers may do this by either signing an order form or a contract, agreeing to the terms in a recorded phone conversation or submitting an online payment form.
The next step is to set up the payment information. The customers are allowed to submit an online payment form that contains their routing number and checking account together with the amount of payment made and whether it’s a recurring or a one-time payment. Alternatively, they may provide you with those details through a recorded phone conversation.
Finally, the only thing that you need to do is to submit the payment details. Soon after you clicked on the Save or Submit button in your payment software, the ACH transaction will begin instantly. Now that you’ve learned how you can set up an ACH payment for your business let’s take a look at the benefits of using the ACH payment method.
Benefits of ACH Payments
Ease of Use
If you compare the use of ACH payments to that of writing checks, then it should become clear that ACH provides a convenient and eco-friendly way to operate your business. There are absolutely no file cabinets to store the checks, no paper checks, and there is no need for any pen to even sign the checks.
On top of that, ACH is undoubtedly better than checks if we compare both of them in terms of the time required to issue the check and the time required for the vendor to have the money deposited into their account. However, there are also certain vendors that still set checks as one of their payment methods, and hence checks remain to be used by some people in the payment processing industry.
The credit system that is widely used by people today provides the same ease of use as ACH, but at the same time, we have to admit the fact that the fees are not as cheap as ACH. This is true especially for small businesses that are rapidly growing that needs to process countless payments from their customers on a monthly basis.
Credit cards are known to charge a fee of approximately 2.5% of the value of every transaction, and on top of that, they also charge a flat-rate processing fee. ACH transactions, on the other hand, typically costs anywhere between $0.20 to $1.50. Now ask yourself, how many transactions will you need to process each month, and what are the average values of those transactions? This clearly shows us how much savings that we can get by simply switching to the ACH payment method.
Works Anywhere in the World
ACH could be used to send money from one country to the other, which helps you to save days or even weeks if you used ACH payment instead of a physical check. Despite the fact that there is no ACH global system yet, the majority of the countries in the world have set up their own systems that are fully compatible with ACH. For instance, in European countries, there is a special system known as SEPA, which stands for Single Euro Payments Area, and in Australia, they call it Direct Entry.
Easy to Be Tracked
The accounting will be very easy to be synchronized as the bank is directly connected to the electronic fund transfer. This means that there is no need for an update of two distinct records done manually the exact same way that people would usually balance the checkbook. There’s a lot of accounting software services and tools nowadays that can be used to integrate with the current ACH system to give you the precise transaction history.
What are the Requirements of an ACH Payment?
- The account number of the recipient
- The type of account (checking or savings account)
- The ABA routing number of the financial institution
- The name of the financial institution that is receiving the money
How Long Does It Take to Receive My ACH Payment?
ACH payments should be reflected in your bank account within three to five working days. The reason for this is that it requires up to three working days for the transactions to get approved. For instance, if your customer made the ACH transaction on Sunday, it should be processed on Monday and Tuesday.
Then, it will be settled on Wednesday and finally be available in your bank account on Thursday. Apart from that, ACH batches are expected to close at exactly 5 pm EST. Hence, any transactions that started after that particular time will be delayed in the next batch together with other future transactions.
In a case where you need to make a cancellation for your payment, you may make the cancellation right before 5 pm on the exact same day by choosing Void. If you accidentally missed this window, then you will need to wait for the payment to get settled. After that, you will need to refund the payment by selecting Refund. However, please keep in mind that you will only be able to see the Refund and Void options whenever they are available to be used.