What is an Automated Clearing House (ACH) Payment?
When running a business, the safety and convenience of your payments are paramount. ACH payments are computerized payments that offer benefits to both consumers and business owners.
With electronic systems, payments can be automated, are faster, and recordkeeping and accounting are simplified.
In 2021, ACH financial transactions increased by 13.8% to $18.1 trillion. Business-to-Business payments increased by 18.7%.
The growth of ACH payments can be attributed to the numerous benefits such as cheap transfers compared to other services like wire transfers.
What is an ACH Payment?
ACH (Automated Clearing House) payments are electronic money transfers from one bank to another and processed through the ACH Network. Nacha is the association that oversees these transactions.
According to Nacha, ACH Network is a processing system that works in batches. Financial institutions such as banks use this network to aggregate the transactions for processing.
ACH payments transfer money without the use of cheques, credit cards, cash, or even wire transfer.
ACH Vs. EFT
While ACH payments are bank-to-bank transactions through the ACH network, EFT is an umbrella term that includes all digital payments. Thus, ACH payments are a type of EFT.
EFT (Electronic Fund Transfer) is a money transfer system comprising all digital payments. The system moves money in cashless transactions across a computerized network.
They include ATM withdrawal, online payments, wire transfers, direct deposits, and even ACH payments.
Types of ACH Payments
Direct Deposits
When you receive money, that’s an ACH direct deposit. They include transactions from a business or the government to a consumer such as;
- Paychecks
- Government benefits
- Tax refunds
- Interest payments
- Reimbursed expenses by the employer
Direct Payments
ACH direct payments occur when an individual, business, or organization makes a payment.
For instance, you make a direct payment when you pay your internet or cable bill from your personal account. Or when businesses pay for goods and services automatically from their operating account.
Benefits of ACH Payments for Businesses
Paying bills, sending money from person to person, or even paying invoices and receiving payment from customers through ACH transfers has several advantages, including;
Less Costly
ACH payments are generally less expensive — some are even free of charge.
Wire transfers are costly. Banks charge around $15 to $40 for international wire transfers. Plus, they’ll charge you a 2% markup fee for currency exchange.
On the other hand, ACH transfers are cost-effective. You also save money you’d have spent on stamps when mailing a check.
Convenient
When you have recurring bills like employees’ paychecks, utility bills, mortgages, etc., ACH transfers are less time-consuming and convenient than writing a check, mailing, or dropping it physically.
Secure Transactions
Security is a concern in every financial transaction.
Threats such as unprotected private data like credit card information and errors such as sending money to wrong recipients, bouncing checks, and cash thefts can affect your business and your relationship with customers and suppliers.
Because there’s no middle man in ACH transfers, payments are secure
Alternative Payment Option
With ACH payments, your customers have an alternative payment method, making your payment options more flexible.
This way, they can make payments remotely and faster compared to checks.
Disadvantages of ACH Payments for Businesses
Transaction Limits
Many financial institutions and banks limit the amount you can send via ACH transfers.
There may be a limit for transfer to other banks and another limit for bill payments. Others include;
- Daily limits
- Weekly limits
- Monthly limits
- Per-transaction limits
Transfer Frequency
Transferring from your savings account frequently can trigger penalties. Withdrawals from savings accounts have limits, and exceeding them with ACH transfers can result in an excessive withdrawal penalty.
Processing Time
ACH payments may be automatic, but they’re not instant. Clearinghouses and financial institutions process them in batches.
ACH transactions take one to three days to reach the merchant. Wire transfers, on the other hand, are processed instantly.
Need to Set Up ACH Payments? Simplypay Can Help
ACH payments are convenient and cost-efficient. You can automate your recurring expenses and even make payments remotely.
Plus, you’ll be offering your customers an efficient alternative payment option. All you need is a reliable payment solution provider.
At Simplypay, we help businesses and individuals process domestic and international payments through EFT, ACH transfers, and credit cards. Avoid annoying delays and exorbitant bank fees and allow us to improve your cash flow.
Ready to streamline your payments? Get started today.
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