ACH payments present more opportunities for B2B businesses when it comes to accommodating for customer needs. ACH payment processing has been increasingly used for online electronic payments, and point of sale payments with the rise of ecommerce.
What is ACH?
ACH stands for “automated clearing house” network. The system moves money and information from one bank to another in the US through either Direct Deposit or Direct Payment via ACH transactions. It is regulated by the federal government (through the Federal Deposit Insurance Corporation) and the National Automated Clearing House Association (NACHA).
What is the difference between ACH and echeck?
Sometimes these terms are used interchangeably. The most common distinguisher between the two is when high-risk merchants are being referenced. Some high-risk businesses won’t be eligible for ACH processing but might still quality for an echeck processor that can mitigate some risk.
This process adds more protection for merchants in industries who might have bounced checks. The processor acts as a middleman to use its own account to process/clear the funds and submit the ACH transaction on behalf of the high-risk merchant.
Types of ACH transfers
ACH Direct deposits: This refers to the following types of payment: paychecks, expenses reimbursed by your employer, government benefits, interest or annuity payments, tax refunds.
ACH Direct payments: These are used by individuals, businesses, or organizations to send money.
What are the advantages of ACH transfers for business?
Depending on your business, ACH payments might reduce hassle and make business easier. You just need to work with an ACH service or software that can handle the process for you.
Quick, easy payment processing for your customers
A secure network online or by phone for security of financial data and ACH check conversion
Cheaper overall for B2B businesses who are shipping in bulk and don’t want to pay high credit card payment processing fees for large orders or repeat orders
Helps retain customers by providing easy online service - specifically for B2B types of payment like purchase orders or recurring billing
Easy to manage online or to integrate with your commerce platform or payment processing engine
In short, ACH saves time and cost, handles bill payments, lowers processing fees, remains easy to accept and is quite trackable.
Are there any disadvantages of ACH?
- ACH works only for US-based bank accounts and there are processing time limits. It takes a few more days than credit card transactions generally to be processed
Accepting other forms of payment such as accepting credit cards is always a good idea for your business though they incur additional fees and require usage of credit card processing companies.
How does ACH add value over paper checks?
Over and above paper checks, ACH saves time and remains more secure and trackable than checks for on-time and recurring payments that require an electronic record. There is less time waiting to know if payments were declined, and you’ll make funds available more quickly.
How does ACH add value over wire transfers?
Wire transfer is generally used for higher value, but smaller volume payments than ACH. Wire transfers are processed individually and not in batches. Wire transfers cannot be reversed. The main advantages of ACH over wire mean it is less expensive for merchants and free for customers.
Is ACH processing right for my business?
Here are some questions that will help you determine if ACH processing is right for your business.
- Do I have recurring customers?
- Do I have customers who would benefit from recurring billing?
- Am I a B2B business processing transactions?
- Will ACH processing fees be cheaper than credit card fees I currently pay?
- Do I serve customers who are wary of using credit/debit cards online?
- Do I accept many paper checks currently?
Are ACH payments safe?
ACH network is overseen and regulated by the federal government and NACHA. However, in order to utilize ACH in a B2B capacity, the merchants will need to submit their banking information including an ABA routing number and some other information to authorize you to take the payment out of their account.
Setting up ACH billing for your small business
ACH billing has lower transaction fees (generally) due to a flat transaction fee as a payment option. This is great for B2B because ACH transactions are less expensive for merchants that credit card processing and debit transactions and have larger average tickets to pay.
Because of the flat rate, you also don’t have to worry about incurring surcharges on transactions.
It’s important to think about this in the context of your whole commerce system. For example, if you use an external shopping cart or payment processor that charges another fee per transaction, that is a cost that you should factor into the overall cost of payment processing, or consider using a tool where the shopping cart is integrated.
- ACH billing has different process times than other card transactions. ACH billing can take 3 to 5 days to process whereas credit cards (depending on the card) may take up to 3 business days. The speed of your electronic payment system should be taken into account when your business is forecasting cash flow as well as customer convenience.
ACH billing is not a debit transaction, though some mistakenly refer to "ACH debit." Both transactions come directly out of the customers bank account, but the form of processing is not the same. A customer provides you with their banking information (social, account number, etc.) and the authorization to take the money out of their account like a direct deposit. Different softwares or platforms that you might work with will have different chargeback policies, so it’s important to know who you’ll need to be in communications with if a problem or a question arises.
If a customer has non sufficient funds (NSF), ACH payments will show this. If the transaction appears to go through, keep in mind that it might return as NSF unless you are using a system that automatically verifies the check. This is why it’s important to limit ACH billing to trusted or vetted customers. You are required to have authorization from a customer to get them set up with ACH.
The dispute policies are different than with credit cards. Unlike a credit card, where you can dispute a transaction for a large number of reasons and obtain a credit while the credit card investigates the claim, this is not the same with ACH.
You can dispute an ACH charge if:
- The charge was never authorized by the merchant
- The charge went through earlier than authorized, and the amount charged is incorrect
Keep in mind that different providers or platforms that bill through ACH might have a different claims process that you go through, whether it be directly through ACH or through the provider itself.
How do ACH payments work for business?
How does ACH payment processing work? Here is the process of how an ACH payment works in action:
- Business initiates the ACH transaction.
- The originating bank/payment processor (known also as the ODFI) submits the ACH entry.
- The ACH entry is sent to an ACH operator.
- Operator sorts through entries to separate by deposits or payments.
- Operator sends entries to the respective Receiving Depository Financial Institution (RDFI).
- Receiving bank ensures that there are sufficient funds in the bank account to fill the necessary amount.
- Receiving bank either credits or debits the originating bank.
How do I find an ACH processor for my business?
To accept ACH payments for your business, you will need one of the following: A merchant account provider/credit card processor, dedicated ACH professor, business bank account provider, accounting software provider, and processor and payment gateway (like Stripe).
ACH fees to consider
In addition to a processing rate, it’s important to ask your provider about additional potential fees:
- A setup or application fee
- Monthly fee
- Monthly minimum fee
- Equipment fee
- Batch fee
- ACH reversal fee
- ACH return fee
- High ticket surcharge
- Expedited process fee
- Check verification fee
Why might ACH payments be rejected?
Here are the common ACH rejection codes to determine why a customer’s payment has been rejected:
- R01 - the customer doesn’t have sufficient funds in their account
- R02 - the customer’s account has closed
- R03 - the bank account number of the customer or the name associated with the account doesn’t match the records of the bank, or the bank account doesn’t exist at all
- R04 - the account number isn’t valid/incomplete
- R20 - the customer’s account is prohibited/limited
How can I verify a customer’s bank account prior to payment processing to avoid rejection?
Here are some good ways to verify a customer’s bank account before allowing them to pay with ACH:
- Check verification
- Authorize the debit card number
- Pre-notification entry
- Account verification
What’s the bottom line?
ACH payments can be a great option for merchants of a B2B business, but offering multiple payment methods is often best. With Inxeption, you get multiple payment processing options including ACH to best suit your customers. All payment options are integrated directly into the robust Inxeption Cart.