North American Bancard Blog

ACH payment processing: a comprehensive guide for 2019

Posted by Joshua Griffin on

ACH (Automated Clearinghouse Payments) aren’t a new form of payment. In fact, they’ve been around since the 1970s. That said, in recent years they have grown into one of the largest, fastest, and safest ways businesses can accept payments. In fact, in 2018, consumers completed 23 billion ACH transactions, resulting in $51.2 trillion in payments. ACH transaction volume has increased by approximately $1 billion over the past four years, while ACH value has increased by roughly $1 trillion over the last six years.  Some common types of ACH transactions include the direct deposit of salaries, bill payments, and claims payments to healthcare providers, just to name a few.

ACH payments have become more frequent for person-to-person, business-to-business, and internet transactions. Further, ACH processing has become more popular because of many banks now offering same-day processing for ACH transactions. The ease of ACH processing along with its speed and security make this form of payment promising to businesses — big or small.

What is ACH payment processing?

So, what is an ACH payment? Basically, it’s an automatic electronic transfer of funds between banks. The National Automated Clearing House Association (NACHA) regulates the ACH network of payment processing.

ACH payments are used to pay bills online, receive your paycheck via direct deposit, send your kids money on Venmo, or have your health insurance company send money to your doctor. ACH payments are efficient and fast since they electronically transfer funds from one bank account to another. ACH eliminates the manual task of writing or printing a check, mailing the check, and then depositing the check into your bank account.

How do ACH payments work?

Let’s say you own a consulting firm. After providing select services to your clients, you send an invoice. If set up for ACH payments, the client will provide his bank (or the originating depository financial institution) with the invoice. The client’s bank will then enter the amount of the invoice into its system, batching it with other ACH payments to be processed by that same bank.

Then, the batched ACH transactions, including payment for your consulting services invoice, is electronically sent to all receiving banks (or the receiving depository financial institution), including your bank. Your bank will then credit your business account for the amount of the invoice.

How do ACH payments compare to other transaction methods?

ACH payments currently account for about 30 percent of transactions overall. However, one of the most popular ways to pay invoices is still by check. Unfortunately, mailing checks is a slower process, sometimes taking up to a week to receive the check, making it difficult to forecast a budget for your company. The system for processing and mailing checks also leaves companies open to fraud and cyberhacking, thus increasing risk. Further, processing checks makes a company’s operations more difficult.

While some companies prefer to stick to this time-consuming, “snail mail” process because they want to keep paper records of any expenditures or sales, many businesses accept and pay vendors with a credit card. If you pay your vendors via credit card, you carry that balance until you pay it in full. There’s no surprise that heavy credit card use can get individuals and businesses in trouble.

However, if funds aren’t available on a credit card, the vendor knows immediately. It may take a few days for a vendor to learn that ACH funds aren’t available, creating a lag in payments. On the other hand, like checks, credit cards are exposed to theft and fraud where ACH payments are much more secure.

What is the fraud rate of ACH payments?

ACH payments are more secure than check and credit cards. In fact, according to a recent Federal Reserve study, ACH transactions have the lowest fraud rate of any payment method. Roughly every eight cents out of $10,000 is subjected to fraud for ACH payments. As a comparison, credit and debit card fraud has increased, accounting for 75 percent of all payment fraud in 2015, up from 66 percent in 2012.

What are the advantages of ACH payments?

ACH payments create many advantages for businesses and companies. The primary benefit of these types of transactions is the ease of making and accepting payments, creating more streamlined operations. Despite many individuals and companies thinking they need to write checks to create an internal paper trail, ACH processing also allows you to receive an audit trail of all transactions. Further, as discussed above, ACH processing has the lowest fraud rate of any method of payment.

When processing payments through ACH, companies don’t have to share as much account information internally or with third-party vendors. Once ACH payments are set up, there’s little reason to “touch” that information again, unless there’s a change in payment information. Furthermore, there’s less opportunity for error when keying in or processing payments. Because ACH transactions are automated (whether for a one-time payment or for recurring payments,)your team can focus on other income-producing activities, knowing that all payments made and received are secure.

How can I get set up to accept ACH payments?

Getting set up for ACH payments is simple. First, you need to choose an ACH processor. Start by comparing the fees and features of various merchant services providers.

Once you select your payments partner, you’ll need to set up an account with them by completing their application. Make sure you keep a copy of the paperwork for yourself.

Take the time to read your merchant services provider's terms and conditions, so you understand the extent of your relationship. Also, you should understand the different types of ACH payments, so that payments are processed correctly.

For example, PDD transactions are when one party agrees in writing to have funds automatically debited from its bank account. Think about setting up payroll through direct deposit. The company agrees to have automatic debits from its business account to pay its employees.

TEL and WEB payments are for when the payer gives permission either over the phone or the web to have funds automatically debited from his or her bank account. Think about when you pay your cable or smartphone bill. You can agree over the phone or on the internet to have money directly debited from your account to go to one or both of these vendors. Both TEL and WEB authorizations have particular requirements, such as specific authorization language or recording the approval when the payer is on the phone.

A final type of ACH authorization is an ARC or BOC transaction. With both of these types of transactions, a payer’s written check permits merchants to convert the check to an ACH payment.

The benefits of accepting ACH payments or processing your invoices through an ACH system make it a must-have for your business. Not only does providing this service offer an additional, convenient payment system for your customers, it also can increase your revenue, by allowing you to receive payments faster and your team to focus on high-level issues.

At NAB, we help make it easy to provide your customers with the frictionless transactions they’ve come to expect. If you’d like to set up ACH payments in your business, we have the technology you need to accept payments effortlessly. We’ll even help you customize your ACH payment processing to your specific industry. To set up a consultation, contact us here or give us a call at 877.840.1952.

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