Businesses can use several methods to receive payments from their clients. Many may allow ACH transfers because these are more cost-effective than some of the other options that are available. This article will explain how ACH transfers work and how your business can benefit from them.
ACH Transfer Meaning – What is an ACH Transfer?
An ACH transfer is a method of moving money between different accounts at diverse banks. A special ACH account is not required. These money transfers take place between banks, through the Automatic Clearing House (ACH) Network. These banks can be in the same community or hundreds of miles apart. You can both send and receive money in this way.
The ACH Network is a batch processing system. A wide range of financial institutions, including banks, use the ACH system to aggregate ACH transactions for processing. Since the transactions are aggregated, your transfer will not usually take place instantly because you will have to wait until the next batch is processed.
Most ACH transactions are processed on the same day or within 24 hours. Processing of the batches takes place three times a day., so every transaction will be completed quickly. You can pay the rent for your commercial offices by using an ACH transfer and you’ll be sure that it will reach your landlord within three days.
ACH transactions are highly secure and they are also convenient. In most cases, a client can request an ACH transfer by using their online banking account. They can do so from their mobile phone and do not have to physically enter a bank. The transaction will have a unique number connected to it, for tracking purposes.
ACH Transfers come in Several Forms
Many businesses already benefit from ACH transfers without realizing it. For example, your company may have been paid for goods by using a direct deposit. A direct deposit is just one type of ACH transfer, so you’ve already been able to use the ACH system for business. Both direct deposits and direct payments are processed by the network.
You may have even benefitted from the ACH system on a personal level. For example, a friend may have sent cash to you from their account. Even though you have an account with another bank, you may have received the money within 24 hours, via a smooth ACH transfer.
You may pay the bills associated with your business through your online bank account. Every bill payment that you make in this way, takes place through the ACH system. This keeps these transactions secure and ensures that each of your utilities and your other bills, will be paid speedily.
As a business owner, you may also use ACH transfers to do the following
- Pay your shippers
- Pay suppliers
- Receive payments from :retailers
- Receive payments from individual customers
Avoid Credit Cards Fees
Business credit cards can be a convenient way of making payments but the ACH network usually more cost-effective. The process of initiating an ACH transfer only takes a few minutes if you already have a bank account and as a business, you will save money by using this transfer instead of paying via a credit card.
Similarly, accepting a large payment from a customer who wants to use a credit card, can cost you a lot. Every time you have to pay credit card processing fees on a transaction that is valued at thousands of dollars, it cuts into your profits. If you can suggest to your customer that they make their payment by using an ACH transfer, you will be able to save all of that money.
You’ll usually pay a basic transaction fee every time you accept a credit card payment. You will also have to pay around 2.5% of the transaction. This means that in order to accept a credit card on a $3,000 transaction, you’ll have to prepare to lose at least $75 in fees. If you’re comparing ACH payments with credit card payments, ACH is always the winner in terms of fees.
Fees are not the sole consideration and an ACH transfer can take up to three days. Credit card processing times are faster and you’ll usually get your funds immediately. This allows you to deal with expenses more quickly. However, you will lose money when you accept that method of payment instead of an ACH transfer.
Main Advantages of ACH Transfers
There are several main reasons why business people like to use ACH transfers. These transfers are fast and they are also affordable. Every time a businesswoman uses an ACH transfer, she saves money. She is also assured that her suppliers will be paid and she will have documentation associated with the payment.
ACH transfers are user friendly. You do not need a special account to utilize them and they can be facilitated with your regular business account. It is easier to do an ACH transfer than use a credit card for a sizable purchase. The fees are also lower, so your business will save money. In most cases, the fees are so low that ACH transfers can basically be thought of as free.
When you use ACH payments, you do not have to worry about tracking multiple payments every month. You can do all of them from the dashboard of your online banking account and have a look at your history whenever you do not remember if a payment was made. You can also do several payments at once, ensuring that they are all competed within minutes.
Doing an ACH transfer is more secure than sending or receiving a payment by check. You won’t have the long delays that are associated with a check payment, So if your business is being paid, you can use the money right away. If you’re sending a payment, you’ll keep your suppliers happy, since they will get their cash more quickly. Even the cost of attaching stamps to checks adds up and you can do away with that once you’re using ACH transfers.
ACH Meaning – ACH Direct Deposits
If your business is paying its employees, it’s usually easy to do so by using an ACH direct deposit. An ACH direct deposit is used whenever a business like yours pays a consumer. These can also be used whenever a government agency wishes to make a payment to a consumer. You could also use ACH direct deposits to pay:
- Travel reimbursements
- Interest payments
- Annuity payments
In all of the cases described above, as a business, you would be making an ACH direct deposit to a consumer. If you were receiving a payment, this would be referred t as an ACH direct payment.
When you make an ACH direct deposit, you will see a debit in your account. Your bank will also show you who the deposit was made to and how much it was for. The person receiving the payment sees it in their account as a direct credit. They will also see information about the financial value of the transaction and the name of the entity that is sending the payment.
ACH Direct Payments
ACH direct payments take place when you receive money. For example, if you sell wholesale t-shirts and a printing company would like to pay you for their order, you would receive an ACH direct payment from the printing company. These payments can be sent by individuals, businesses and other types of organizations.
If you operated a community organization and you were raising funds for a project, businesses in the area could support the project by making ACH direct payments to your account. You could have all the money that they had pledged to your cause within 24 hours. If your business has ever used a social payment app to send money to members of your professional family, you utilized ACH payments.
ACH vs Wire Transfer
Wire transfers are like electronic cashier’s checks. While they can be completed within a day, sometimes the recipient will not be able to view the money or have access to other funds. This is because a bank employee needs to review the transfer and send the money into the recipient’s account. If you are making small, frequent payments, ACH transfers are a better option.
Unfortunately, a wire transfer cannot be reversed. This means you need to be absolutely sure of who you are sending the money to. ACH transfers are different, since they can be reversed. For example, if you overpay a creditor by accident or fraud occurs, you can get back your money. ACH transfers are free or the cost is negligible but wire transfers have higher fees attached, although these are lower than those for credit card transactions.