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How Do ACH Payments Work?

As a business owner, you use Automated Clearing House (ACH) payments to pay bills, loans, mortgages, or simply to make direct deposits. If you are new to ACH payments, you must be wondering, how do ACH payments work?

The payments happen over an ACH network, a system of computers that communicate with each other to make and receive the payments.

Every ACH transaction comprises two computers-one on the sending end, sending a request for payment, and the other on the receiving end to accept the request.

Processing a transaction involves sending a file to the originator’s bank, then to the clearing house, and finally to the recipient’s bank, where the money is transferred to the receiving account.

Why should you get ACH payments for your business?

The payments come with plenty of benefits that include:

They are Easy to Handle

Since the payments are electronic, they arrive quickly and reliably. This differs completely from when you receive the payments via checks.

When your customers pay using a check, you have to wait for the check to come by mail before depositing it in the bank. You also then wait a few days for the transaction to be processed.

Besides this taking a lot of time, it also increases the chances of the money getting lost. For example, the check can get lost during transit. It’s also tedious to enter the payment into the record keeping system.

It’s Less Expensive

ACH payments cost much less to process than credit cards, which saves a lot of money, especially if you collect plenty of recurring payments. To save even more, automate the payments.

You can Collect Long-Distance Payments.

Although you can collect credit card payments remotely, ACH payments make a great alternative when your customers aren’t willing to give their card information regularly.

You May Read: Why Payment Gateway for Small Business is Ideal

How Do you Accept ACH Payments from your Customers?

To accept the payments, you need to partner with a payment processor. Thankfully, there are many payment processors you can use. Some of the obvious ones that you might already be working with include:

  • That bank where you keep your business accounts
  • The vendor that processes your credit card payments
  • Your accounting software provider

Since you already have a working relationship with them, simply ask them whether they can enable ACH payments for your business.

When you are shopping for a payment processor, pay close attention to the processing fees. You don’t want to be spending all of your profits on fees, do you?

How Much Do the Payments Cost?

Like credit card payments, ACH payments reduce with volumes where the larger volumes attract lower fees. While this is the case, on average, the payments cost around $0.29 per transaction. 

If you are a small business owner and don’t make a lot of transactions, you might be charged more.

Some payment processors charge per transaction, others have a monthly fee, while others take a percentage of each payment.

Does Every Business Need an ACH Payment?

Every business would benefit from ACH payments, but if your business is too small or are a service provider receiving one or two checks a month, you are better off sticking with checks as it will be more trouble than it is worth it to set up ACH payments.

On the other hand, if you receive several checks a day, you are better off with ACH payments. Remember to automate them to get the most from them.

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