Debit cards and credit cards have quickly become the go-to payment option for most people after cash. A study conducted by the Federal Reserve payment discovered that there has been a steady increase in debit and credit card transactions over the years, with more than 70% of people using them. What’s more, both of these modes of payments are expected to grow as time passes. That said, if credit and debit cards are gaining so much popularity, why are small and big businesses always searching for other mediums to receive and send payments? Well, the answer is relatively straightforward – the processing costs associated with debit card and credit card transactions can be relatively high. These costs are a major reason why more and more businesses are exploring ACH transfers (Automated Clearing House).
Are you new to ACH for business and wondering how it works? If yes, continue reading this piece as it will discuss what this technology is all about and how it can benefit businesses no matter how big or small they are.
What is ACH for Business and How Does it Work?
Automated Clearing House transfers are an excellent way to move cash between different bank accounts electronically. The technology allows you to receive or send money with complete security and maximum convenience. Some individuals and businesses use ACH transfer modes without even knowing about them. For instance, if you have ever made a direct deposit payment, it is an ACH transfer type.
Paying your bills online from bank accounts is another form of ACH transfer. One Can also take advantage of Automated Clearing House Transfers for making recurring or single deposits to individual accounts (for retirement), college savings account, or even brokerage accounts.
If you are a business owner, you can also utilize the ACH technology to receive payments or send a payment to vendors. You may be surprised to learn that 2019 accounted for more than twenty-four billion ACH based transactions.
Contrary to popular belief, ACH transfers have plenty of uses. They are quite user-friendly and cost-efficient, especially when you compare them to paying with debit or credit cards or writing checks. As explained earlier, an Automated Clearing House transfer is bank to electronic bank money transferring technology processed through the Automated clearing house network.
The National Automated Clearing House association states that their network is essentially is a batch processing system used by banks and a variety of financial institutions for aggregating ACH transactions to process. This process generally happens three times every business day. It’s also worth keeping in mind that the ACH network can process two types of transactions: direct payments and direct deposits.
Now that you know what ACH for business is and how it works, let us discuss some of its main benefits:
Minimal Transaction Costs
As mentioned earlier, one of the best things about ACH transactions is their relatively low processing fees, particularly when you compare them to credit cards or checks. There is a popular article in the Wall Street Journal, in which the Bank of America claimed that an individual spends four to twenty Dollars writing checks. This includes things like time spent, mailing costs, signing, authorization, payment initiation, printing, and much more.
However, an ACH transfer is vastly different as it allows you to transfer funds between two accounts while keeping the costs at a minimum.
In ACH, the settlement times offer a more convenient medium between credit cards and checks. Automated Clearing House settlements often take 3 to five working days, paper checks can take up to six business days, and credit card settlements require around three working days.
In addition, the National Automated Clearing House Association approved a rule to make same-day transfers a possibility. NACHA intends to develop two main windows for facilitating the same day transfer in ACH. There will be one submission deadline for the morning, starting at 10:30 AM, and the settlement taking place at 1:00 PM. This can help businesses improve their overall efficiency, flexibility, offering them quicker access to funds.
Humans are bound to make a mistake one time or the next. It could be a blunder a simple as transposing numbers during a manual entry in databases or spreadsheets or leaving an envelope behind the desk, unnoticed. Whatever the case, human errors like these can have massive ramifications for corporations and their clients.
As physical payments decrease with time, the error rates go down as well. Furthermore, reduced or no errors at all can save businesses loads of time that would otherwise be spend on dissecting the problems and resolving them. Instead, they can spend this time on more pertinent tasks to improve their operations.
Gone are the days when you had to worry about cutting checks. Why? Because ACH transfers simplify money transfers by tenfold. What’s more, this payment system offers you the best of both worlds. If you are a business owner, you can provide your customer some flexibility to make one-time payments or even set up a recurring payment system. In addition, if you are a payer, you can do away with hefty checkbooks.
Perfect for Recurring Billing
ACH transfers are tremendous for businesses that use subscription models as it lets them accept payments while keeping everything cost-effective. There is no fear of paying transaction fees, which is always a massive bonus no matter how big a business is. The higher the amount of transactions made by these businesses, the higher the transaction fees, making ACH the better option than other payment modes.
ACH does away with a lot of common problems that people have with checks. As most of you may know, paper checks are often vulnerable as they are always at the risk of forgery or getting misplaced. On the other hand, ACH transfers are much safer, direct, and do not have any intermediary. So, if you are considering using ACH for business, you can breathe a sigh of relief knowing that you entered the correct information and your account is free from transaction blocks.