ACH payments involve transferring payments directly from one bank account to the other without using any types of checks, cards, or wire transfers. Previously, ACH was mainly used by financial institutions and big corporate houses, but now small businesses have also started using it. The ach transfer methods can benefit your business in several ways, especially for recurring payments and fast transfers. The whole process can be done remotely with the click of a few buttons. It means ACH improves your convenience and saves you time. This article will discuss some simple things that will easily help you set up ACH payments for your business.
As your business grows, you need a more secure and easy payment solution beyond cash, cards, and wire transfers. Setting up a direct deposit ACH payment can help you in this case. Apart from receiving money from your customers, ACH can help you pay salaries to your employees, money to your vendors, and taxes to the government. It will help to decrease the use of paper and contribute towards reducing the carbon footprint.
ACH payments are used in various ways for depositing money from one bank to the other. Business owners can pay their employees through direct deposits, which is an example of ACH payment. The ACH transactions basically function as electronic checks.
The ACH payments function in four steps:
- The customer has to first authorize the payment made from their bank account at the company’s website.
- The business will then send details of the payment to the bank or ACH provider. This is known as the Originating Depository Financial Institution (ODFI).
- The request for payment from ODFI is routed to the customer’s bank account, known as the Receiving Depository Financial Institution (RDFI).
- The RDFI then checks if there is a sufficient amount in the account to make payment. If so, they start the process.
Setting up ACH payments for business
The ACH system for recurring payments helps to maintain the cash flow in your business and contributes to its growth. But to achieve that, you would need a completely separate process for credit cards. You should be aware of the specific requirements for ACH payments before you can incorporate them into your business operations.
Step 1: Feasibility
It is essential to note that ACH payments work only within the United States, unlike other payment methods. So, if your business stakeholders are international, you will not get maximum benefits from this system. Apart from the geographical locations, you should also consider the type of customer and transactions you have mostly to understand if ACH will work for your business.
Step 2: ACH providers
Check with your business’s bank if it supports ACH transactions. Compare their rates with the third-party ACH handlers. If you use third-party providers for credit card processing, ask them if they can also deal with these transactions. You should consider the fees and ease of transaction process as the main points to choose the best ACH provider.
Step 3: Merchant account
The third step is to set up a merchant account for ACH payments. This should be separate from the account set up for credit card sales. Always keep monitoring this financial asset. To set up the ACH merchant account, you should have the right documents. Also, ensure that the provider offers a free recurring billing option. It is an important feature that you should surely consider.
Step 4: ACH payment methods
It is essential to choose the ACH payments wisely. You need not convert your every sale to an ACH transaction. Rather you should do it where it is required. You can consider:
- Check scanner, which will allow you to process checks without depositing them physically.
- Virtual terminal, which is the key in mail order and telephone order payment information
- You can also encourage ACH transactions through website payments, even for one-time sales. It will help you to save a lot.
Step 5: Unwanted costs
With ACH transactions, you can avoid all the unnecessary penalties and add-on fees. To avoid unwanted costs, you should check the guarantee or verification and also take chargeback protection.