An electronic funds transfer platform which is being run by the National Automated Clearing House Association (NACHA), the automated clearing house (ACH) is a convenient payment system dealing with tax, payments, payroll, tax refunds, direct deposit, consumer bills, and many other payment services.
The numerous benefits of the use of the Automated Clearing House network to enable money transfers electronically have enhanced the efficacy and suitability of business and government transactions. Very recently, money transfers by this system have made it much easier and inexpensive for people to transfer money to others from their respective bank accounts directly by e-check to accept ACH payments online or direct deposit transfer. This system for the individual banking services had classically taken 2-3 business days for taxes to clear, but beginning from the year 2016, NACHA has been presented in three phases for the ACH settlements to happen the same day. Phase3 was launched in May 2016 and it demands Receiving Depository Financial Institutions (RDFIs) to make Automated Clearing House credit and debit transaction that very day to be available to the receiver for removal by 5 p.m. according to the RDFI’s local time. Let’s find out more about the ACH system and ACH payment processing:
Automated Clearing House(ACH) are payments made electronically from one bank to another. In recent years, businesses have increasingly replaced physical checks, credit, and debit cards with ACH payment solutions. It is estimated that over $41 trillion transact in ACH networks annually – a clear indication of the convenience of the ACH payment.
During ACH payments, funds move through the ACH network, and recipients receive it from the operator within a few working days. Typically, the sender, recipient, and ACH network are required for the processing of transactions.
ACH requires authorization from both parties(sender and receiver) for transactions to go through. When the recipient and sender authorize the payment, transfers are made without the hassle of bank visits and paperwork.
ACH is a common payment processing solution in businesses, government institutions, and consumer industries. ACH is a preferred payment solution for online transactions because of its time-saving and money-saving benefits. It is most suited for recurring payments since it is secure for completing established transactions. ACH is also an efficient payment solution for direct deposits, mortgage, and loan repayment.
What are the Benefits of the ACH Network?
The Automated Clearing House system is one that groups up the financial transactions together and processes them at various regular intervals during the entire day. This enables one to accept ACH payments online which prove to be extremely fast and convenient, with mean ACH debit dealings settling within one business day, and mean ACH credit transactions settling within about 2-3 business days. But because of the recent changes to NACHA’s functioning rules, this system allows for settlements that same day of most ACH transactions today! The electronic payments are really popular for many reasons:
- Firstly, the benefits can be seen from the fact that they are electronic. The easy ACH payments use really little resources than the typical paper checks. This network does not require the expenses of ink, paper or the fuel to transfer checks, labor and the time to deal with and deposit the checks.
- Electronic transactions are also a lot easier to keep track of the various expenses and income. With each such transaction, the banks generate an electronic record. The history of the transactions made can also be accessed by the personal financial management or the accounting tools.
This network supervises more than 90% of the entire value of all the electronic payment transactions in the US. It has been reported by NACHA that the ACH system upsurges by about an average of $40 trillion each year.
Here is how ACH payment works
To authorize ACH payments, the payment provider needs the customers’ name, account number, account type, bank name, and account routing number. With this information, the business can quickly process the payments through the website platform, virtual system, or check scanner.
For website transactions, the payment gateway and account provider includes a form for collecting ACH funds through your website. The customers submit their account details through a web form for transactions to be processed. Processing ACH transactions through the website is a tough decision for most customers. Mainly because of trust issues with the security of their information. However, communication through a reliable helpdesk could help clear doubts.
The virtual system allows account information to be keyed into the computer to process payments. Virtual networks are applicable for keyed entries like MOTO(mail order), telephone order, and recurring payments. They are a favorite for customers with recurring transactions since the processing of payments come directly from the bank account and not the credit card. With ACH virtual system, customers with recurring bills have the convenience not to key-in account details every time they transact or remember payment schedules.
A check scanner may not be completely paperless. The physical check is still needed to process and complete the transaction. The check is run through a scanner to convert it into an ACH transaction. The transformed check is then processed through the ACH network. Authorization from both parties is requested and once approved, the transaction is completed.
Several parties are needed for the successful completion of ACH payments. If you are working with a payment processing company, it is essential if your ACH, credit and debit card, and payment gateway provider work together. When the participants collaborate, you get a streamlined payment procedure. The parties you need for the operation of an ACH account are:
- The sender and the senders’ bank
- The recipient and the recipients’ bank
- One or two ACH operators
Here is how the participants operate
- The sender initiates an ACH payment with their bank
- The bank receives the payment and books it into one of their entries.
- Several entries are put together in batches and sent to one or two ACH operators.
- The ACH receives the batches and forwards them to the bank of the receiver.
- The receivers’ account is credited within a few business days.
Tips for Using ACH
When operating an ACH payment solution, it is essential to learn the tips and tricks of operation. There are risks in every business. But with reliable payment processing solutions with ipaytotal, you receive guidelines on how to effectively manage your ACH payments.
Collect the Right Information
ACH payments happen when the right information is given to the payment processor. The processor requires the account-holders’ name, type of bank account, account number, and routing number for authorization. Most of the information is transmitted online, but a few instances require manual submission through paper forms. When requested for information, countercheck your presentation and ensure the data is correct.
Save Information for recurring bills
For recurring bills, save the right information at the initial setup of the ACH account. The saved information is essential for processing payments with a schedule. Keeping data is necessary for the one-time authorization of transactions. Through saving, you avoid the inconvenience of requesting for data every time a recurring bill needs processing.
And in the case of a decline, the account holder can be notified if the right information is available. ACH saves businesses from the troubles of constant manual processing. It reduces the risk of error, disputes, missed schedule, differences in the amount, and wrong authorization of transactions.
Understand Rejection Codes
It is common to receive error codes with ACH payments. Some errors can quickly be resolved from your point of sale, while others need contact with ACH providers. Understand what your rejection codes mean and consult where necessary.
R01 Insufficient funds – Insufficient balance in the customer account. The customer can resolve the code by adding funds or choosing another mode of payment.
R02 Bank Account Closed – Account no longer exists. The owner or bank may have closed it due to unresolved issues.
R03 No Bank Account/ Unable to Locate Account – A mismatch in account holders’ information. It means that the data entered by the payment processor and the records in the bank differ.
R29 Corporate Customer Advises Not Authorised – Customers’ bank has preventative measures against ACH. There may be limits to the type of transactions a customer can pay with ACH.
An Integration of Payment Processing Solutions
Using ACH with separate payment processing solutions always spells trouble for any business. A streamlined solution should offer software integration for ACH payments with payment processors and payment gateway.
The Pros of ACH Payments
ACH payments are cheap since no middlemen are involved. The transaction rates are lower than those of credit card payments. Some individual accounts can also be free, but if charges apply, it is cheaper than other transfers.
ACH payments are initiated and completed without the hassle of bank visits. All the operations are electronic and can be done at the comfort of your desk. The convenience of ACH frees your time, allowing you to concentrate on other activities.
No carbon footprints
Everything is electronically managed in ACH payments. No material resources like paper, ink, or pens are required to complete payments. ACH payments are more environmentally friendly.
Every transaction initiated through ACH is well monitored. Even if complains and disputes arise, refunds are made at the convenience of the seller. The buyer cannot initiate chargebacks directly from the ACH operator.
Security of Payment Processes
ACH protects businesses against fraud. In ACH, transactions can only be initiated when two parties agree. Lack of authorization from one party means the transactions cannot be processed. Fraudsters have little to no opportunity of infiltrating the ACH payment processing solutions. Even in the case of fraud, it is easily recognized and resolved.
ACH processors track transactions and cashflow of customers. They are keen on recurring bills and invoices. They keep a close eye on the schedule to ensure the correct transfer of bills. The monitoring serves a great advantage to customers. With ACH monitoring every payment, businesses can concentrate on other operations. But of course, the company has to confirm statements for the smooth running of services.
The Cons of ACH Payments
Transactions in ACH are usually processed in batches. A limit is set, and processing begins when the threshold is reached. The accumulation of transactions causes a delay in the completion of payments. For time-sensitive transactions, ACH is considered a slow and unreliable payment solution.
Due to delays with ACH, a seller can learn about a buyer with insufficient funds after the release of products and services. Processing transactions in batches delay the update of information. In the case of a bounced check, the seller can incur unexpected losses.
Finding an ACH Processor for Your Business
Different types of companies can help initiate an ACH payment
- A merchant account provider like ipaytotal
- A bank account provider
- An ACH payment processor
- A payment processor with a reliable payment gateway
- A software integration company
The above providers are the best link to a secure ACH payment processor.
ACH is a safe payment processing solution. To establish fast and reliable payment schedules for recurring bills, consider using ACH. Fewer frauds and chargebacks are expected with ACH. The business also enjoys constant monitoring of payment transactions. ACH payments are easier for businesses and customers to use.
When it comes to cost, ACH is cheaper to process than checks, debit cards, wire transfers, and credit cards. Large transactions can also be handled with ACH.
The world is fast moving to online payments. Apart from Business-to-Business(B2B), and Business-to-Customer(B2C) transactions, Person-to-Person is increasing in the use of ACH. You no longer need to worry about writing checks and visiting the bank to process transactions. Save your time by making purchases and paying electronically with ACH payment solutions.