The Ultimate Guide To ACH Payment Processing For Small Businesses

May 13, 2021

For a thrifty business owner, using the best available payment methods to improve your bottom line is key to reaching your business goals; ACH payments is one such method.

While not a great option for retail or hospitality, ACH payments work for any service business types of varying sizes. Not only are they a convenient way of transferring money, provide great reliability, and lower the cost of accepting payment for your services. They are often preferred for recurring payments for both B2C and B2B industries.

In this article, we will provide an unbiased review of ACH in detail, provide a closer look at its benefits, and discuss how you can get started with ACH payments at your business.

2021 Guide To ACH Payment Processing For Small Businesses

To start our overview, we’ll examine what exactly an ACH payment is and how they work compared to other forms of payments.

What are ACH payments?

ACH stands for Automated Clearing House, a network that facilitates electronic payments from one bank to another. Unlike credit card payments, your customers approve a payment from their bank account to your business’ bank account for direct bank-to-bank transactions. It is often used for regular payments, such as mortgage and car loan payments, utility bill payments, and phone bill payments.

Customers allow a business to regularly access their bank account for payments on charges. The billing cycle is typically on a monthly basis but they can be done as often as you need. Payments from businesses can move in the opposite direction as well. Paychecks are an example of an ACH payment done from businesses, as are PayPal, Venmo, and other money transfer services.

Customers can choose options of timing for electronic payment such as a one-time payment or ongoing future payment such as a monthly subscription fee. In some cases, they may be used for international payments.

Are ACH payments for merchants the same as a direct deposit?

You’ve heard the term direct deposit before, and that’s exactly what this is. Whether it be a direct deposit payroll or for regularly paying bills, this payment platform provides accurate and timely payments when timing is of the essence. Employees are always paid on the day of the transaction (Fridays, for example) and all bills are paid on time - including credit card payments. This prevents painful late fees due to delayed payments, while also keeping your costs as a business owner low.

Other benefits of ACH payments

Lower processing costs than credit cards and debit cards

One of the biggest benefits of ACH is lower fees. An ACH processing fee is a lower interchange rate than credit card transactions, resulting in a lower monthly cost on your processing statement. ACH networks charge between one and three percent less than credit cards and debit cards. The lower costs per payment can add up to important savings, especially if you have high ticket items or high sales volume.

Another key benefit from direct payments from your customer, rather than via a credit card is that they are harder to file a chargeback. Chargebacks are the bane of business owners, as they can lead to a loss of time and money for a product or service. It usually leads to unnecessary additional fees and hassles.

Regular payments sent directly to your bank account

Receiving regular payments helps you maintain a more stable and profitable business while allowing more focus on other initiatives. It is also a more convenient payment method for your customers, improving the customer experience by reducing the hassle of customers needing to authorize or initiate each payment. All transfers happen automatically, providing your customers with a clear readout of charges – sometimes before payment is taken. All of this results in happy clientele with increased loyalty who will pay for your services for a longer period of time than they would otherwise. With one click they authorize payment and then simply allow payments to continue until they feel the need to cancel.

Improved invoicing

Similar to processing credit card payments, since ACH payments are done electronically, you get confirmed readouts of payables and receivables, making it easy to see where you are financially. This billing feature results in less guesswork, and by avoiding cash payments, all of your transactions are correct and easily referenceable in the event of an audit. Meaning you won’t have to struggle with creating and organizing paper invoices. Each electronic invoice is created automatically, making the reconciliation of invoices easy.

ACH benefits over wire transfers

ACH Payments are similar to wire transfers, but different in key ways. Here we will provide a one-to-one comparison. Both options ensure sufficient funds are in place and locked before money is transmitted, but they differ in price, speed, size, and overall payment processing time.

The differences between ACH payments and wire transfers

ACH Payments are significantly less expensive for the payer, costing less than a credit card charge compared to wire funds in which the payer is charged a flat rate between $15 and $50 per transaction, or $15 for the receiver.

Direct bank transfers done as wire transfers have some benefits ACH does not have, such as speed of authorized funds, but paying for initiating wire transfers can be a hit to your profit. The good news is neither payment method sacrifices the other. Having both will prove useful for your business.

ACH Payments are initiated at regular intervals during a bank day (about three times a day, called “batches”) whereas a wire transfer is done immediately upon request and the verification of funds. Both wired funds and ACH funds are available as soon as they hit the receiver's account, but it’s important to note that even though you can get same-day ACH payments, confirmation can take three to five days - even after you withdraw the funds. This longer validation time may sound like a drawback, but it is a benefit, too. If funds of a wire transfer are received and if for some reason an issue has taken place with the order or the customer that may prompt you to cancel payment, you may have issues having the funds returned.

A wire transfer acts like cash by being void of return guarantees. An ACH payment allows for the cancellation and return of funds to your account even after payment has shown on the receiver’s account. This has made ACH a safer option to protect against fraud.

The timing of ACH payments can also be faster than expected. The three-to-five days is a cautionary timeline to account for slower banks, varying time zones, and closing times of each bank. Due to the popularity of ACH payments, the technology has seen huge growth with banks, such as transfer times going from one time a day to three, improving the timing of transfers without sacrificing the benefit of immediate withdrawal.

Regarding the size of transactions, wire transfers don’t always have a limit. It will depend on the banking institution. ACH transfers set a limit of $25,000 per day and may have a monthly cap on payment volume too.

Benefits over money orders

Like ACH payments and wire transfers, funds from money orders are provided the same day or the next business day. The difference lies in that money orders have a threshold dollar amount of around $1,000 per payment while ACH has a limit of $25,000 per day. Like wire transfers, money orders are also less secure than ACH payments.

Benefits over cash

Cash has its benefits for your business and, like other payment options, can be input into your POS system (we offer this service regularly), but it is also extremely susceptible to theft and accounting mistakes. Electronic transfers via ACH provide exact readouts of funds and prevents theft - even within your own company. The funds are also automatically deposited into your business account, avoiding the need to drive to a bank and deposit cash. Though ACH has a transaction fee, the benefits of convenience and safety alone are worth the cost. After one cash theft incident, you will wish you had ACH.

The basics of taking ACH payments as a merchant

Most merchant service providers offer ACH Payment capability, and we’re no exception. We aid you with setup, ensure a smooth-working system, and can troubleshoot any questions or transaction issues along the way.

You will be equipped with software that lets you request automatic payment from a customer and your customer can approve it online on your website or via email, in person, or over the phone. Once they have agreed and the customer’s bank and personal information are input in the software, the customer will be billed and payment will be taken at the frequency you specify.

When the time for payment is due, your bank will automatically send a request to the customer’s bank to transfer funds. The two banks confirm the funds are on hand and then the funds are transferred. Invoices are automatically generated, and you and your customer receive records of payment.

How to get started - selecting your merchant services provider

As a merchant account provider, BNG Payments is equipped to provide you with your ACH payment software and all necessary equipment. Our long history in the payment industry ensures the software you work with is safe and secure.

In today's business world, customer data protection is becoming increasingly important due to increases in electronic payments and online purchasing. We provide software that ensures all transactions are encrypted to protect against identity theft and is compliant with safety requirements set by the federal government and NACHA.

We also offer a full range of services including virtual terminals that allow you to run transactions internally and remotely through mobile devices. We even offer online systems for easier ACH customer signup and payment processing.

If you’re looking to expand your payment options and take ACH payments through multiple platforms, contact our team for a free discovery call.

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