An ACH transaction is one that is done without an actual check written and given to someone else. Instead, the funds are electronically taken out of a checking account. This can be a one-time approval for a purchase. It can also be set up monthly to automatically pay for recurring bills. For example, utility bills, phone bills, vehicle payments, and insurance payments.
What does ACH stand for?
ACH stands for Automated Clearing House, and it is a popular way to pay for items. It is faster than writing a check, mailing it, and hoping it arrives before the due date. For recurring bills, it is easy to set them up so they are paid from that account every single month. All you have to do is make sure you keep track of when they are due and deduct the transactions from your checking account ledger.
The process involves authorization with the entity you are paying the funds to. They will need your bank account information. This includes the name on the account, the bank name, the routing number, and the account number. Once these details are verified they can set it up for you. The process doesn’t take long at all.
Pros of ACH
There are many pros of ACH transactions.
- They are fast and convenient.
- This setup can prevent late charges because you didn’t get the check in the mail in time.
- You don’t have to worry about checks getting lost in the mail either.
- You don’t have to spend time writing out checks at all.
It is easy to see where your money has gone and for payments to be completed when they are due. This takes the guesswork out of how early you need to mail a check to ensure you don’t have a late fee. ACH payments should show up the next business day and you should get a confirmation number for them.
Other Pros as a Business Owner
Automatic payments are good for the environment. There is no paper being wasted on the checks, envelopes, postage, and more. Plus, you can save time because you don’t have to drive to drop off checks or take them to the post office for processing. You won’t have to panic when you go to write checks for bills and realize you have run out of them!
This method helps those that travel often for work or fun to stay on top of their bill paying. They may not be home when bills are due. They can set them up to be automatically paid while they are away from home. For the elderly, such a setup can help them have more independence as a family member or caregiver can help them set up the automated payments. ACH is safer than writing checks as it greatly reduces the number of times your information including the routing number and checking account number are seen by others.
Checks can be stolen, and others can write them and get funds from your account. It can be hard to get that money back. It is hard to identify who took them and where they used them. By the time you are alert to the problem; several checks may have cleared your bank account.
Federal laws offer protection against unauthorized ACH payments by entities or billing errors with the amount. You have 60 days from the date of the charge to dispute it with your bank. Make sure you always review all transactions from your checking account and question any that aren’t familiar to you. Some of these laws cover business accounts but most pertain to personal accounts.
There is tracking with any automated clearing house transaction. This makes it very difficult for someone to scam and take your money compared to a wire transfer. The tracking details can help your bank and law enforcement to find those responsible. If the bank can’t verify it is a legitimate charge they are likely going to reverse it and give you the funds back.
Cons of ACH
There can be some negative elements of ACH too. If the bill amount can change each month, you have to be ready for that amount. For example, it may be for a utility bill and that can have an increase if your heating or cooling costs go up.
Not all entities are responsible for ACH transactions, and that can create issues for you. For example, you may have asked them to discontinue taking funds out of your account to pay for something previously authorized. If they continue to do so, your account may not have sufficient funds to cover it. This may require you to reach out to your bank and get assistance with reversing that charge. They can also prevent future charges from that entity to withdraw funds from your account.
Some consumers fail to remember to write down these automated clearing house payments they authorized. They may think they have more money left over than they really do. It can be a hard lesson to learn when you see that charge go through that you didn’t remember to write down and subtract from your available balance.
Be selective about who you give your banking information to. Most entities are legitimate and they are trying to make your payment process convenient. Others are scams and they try to get the personal details of others.
Make sure you don’t continue to pay for things you no longer need or after the agreed time expired. When you have automated payments set up you may overlook such details. Keep track of balances due for a bill you plan to use ACH to pay off over time. Identify when that last payment is due and confirm the provider doesn’t continue to take money out.
If you have automated payments set up for service fees or memberships, evaluate them regularly. If you aren’t gaining ongoing benefits from them it is time to cancel them. Otherwise, that money is just being taken out of your account but you don’t get any return on it.
Most ACH transactions are free. They are courtesy by the banks where the checking accounts are set up. Some charge a fee for those services. It may be a flat fee amount, usually $3 or less. In other situations, it is a percentage of the transaction. It is recommended to check into this before you set up any automated payments. If you plan to use them frequently, it makes sense to set up a checking account with a bank that doesn’t charge fees for the service. With Payline, it is $.20/transaction.
If there are fees, make sure you know the amounts and agree to them. Don’t forget to include those fees when you write down the transaction amounts in your checking account ledger. Otherwise, the amounts aren’t going to add up correctly when you reconcile your banking details at the end of the month.
How to Set it up as a Business Owner
The ability to accept ACH transactions can be a smart move for your business. It reduces late payments and reduces processing time. It allows the funds to be there instantly rather than waiting for checks to arrive and then be deposited into your account. This difference can influence your cash flow for the business.
Getting set up for ACH as a business owner isn’t difficult. If you already have a merchant account to accept credit/debit card payments, they likely offer this service too. If you have a business bank account your bank can help you set it up. Spend some time investigating the options available to you and the process involved for each. You need a process that is fast, reliable and helps keep your customer’s checking account information secure.