What is an ACH Payment?
ACH payments are a type of electronic bank-to-bank payment. The ACH system is used to quickly move money from one bank account to another. It is similar to a wire transfer, paper checks or cash moving between accounts, except much faster and less expensive than a wire transfer.
ACH is an acronym for the Automated Clearing House network. This U.S. based network also covers the U.S. Virgin Islands, Guam, and American Samoa. ACH payments are not generally made in the UK, anywhere else outside the United States, and our associated territories. International ACH transfers are possible but typically handled as a wire transfer for speed between countries. ACH payments are commonly called ACH transfers or an ACH transaction. Loosely used, people might say, “I’ll ACH the payment” to mean they will transfer money from their account to yours.
The History of ACH
The Automated Clearing House Network is used for electronically moving money between bank accounts across the United States. It is operated by NACHA. That’s the acronym for National Automated Clearing House Association. NACHA launched in 1974 and has overseen the development of the ACH network since its inception. Nearly $73 trillion dollars were transferred as ACH transactions in 2021, a year-over-year increase of more than 17% from 2020. Transaction types include government payments, consumer payments, and business-to-business transactions and it is believed that the pandemic helped increase the use of ACH payments.
Direct Deposit vs. Direct Payment
ACH transactions are divided into two main categories. They are known as Direct Deposits and Direct Payments. You likely have participated in Direct Deposit for years as employers switched from paper-based paychecks to Direct Deposit years ago. Direct Deposits are also used for payments from businesses or the government to an individual. Tax refunds, government benefits, and interest payments are completed by Direct Deposit.
Direct Payments are used to electronically move funds to make a payment or receive a payment between two parties. They can be two individuals, two businesses or a combination of both. As an example, you can quickly send a payment to a family member. You can also use Direct Payment to purchase a product, pay an outstanding bill or donate money to a nonprofit group. Direct Payments are a type of ACH transaction that most businesses can benefit from using.
ACH Credits and Debits
ACH Payments consists of either an ACH Credit or an ACH Debit. An ACH Credit pushes money into an account. Typically, a business is on the receiving end of the funds in an ACH Credit as money is transferred into the business bank as a credit or deposit and the transaction is initiated by your customer. However, a business can also initiate an ACH Debit to pull funds directly out of your customer’s bank account with your customer’s authorization to do so. When a customer owes you money, it is easy to remedy a past due account through an authorized ACH Debit.
ACH Processing Time
In most cases, ACH transactions take less than 2 banking days to appear in your account from the time the transaction is initiated. NACHA says that almost all ACH payments are eligible for same-day processing, however, there is a premium fee for this service. Instant ACH processing is also available for another premium fee.
The Cost of an ACH Payment
The national median cost of processing an ACH payment is $0.29 per transaction. However, the costs can vary based on a number of different factors. Aurora Payments offers ACH Merchant Services at very affordable rates and can have you set up in less than a day.
The Benefits of ACH Payments
ACH payments are much cheaper than accepting credit card payments for outstanding invoices. Consider that you are paying about .30 instead of as much as 3.5% of the balance you are trying to collect. ACH payments allow immediate resolution of past due balances. Decrease collection efforts by providing your customers with more ways to pay. Using payment integration with your existing accounting software, businesses can save time on financial tasks such as monthly billing and payment posting. Customer accounts can be automatically debited to pay a monthly invoice. Paying with a low-cost method like ACH debits can really make a big difference for small businesses.
Ready to Implement ACH Payments?
If we have inspired you to look into using ACH Payments for your business, it’s worth reaching out to us for a chat. Our team is ready to implement ACH payments for your today. Call us at 833-287-6722 or email us at [email protected]
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