What Are Ach Transactions? Everything You Need To Know

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ACH transactions are electronic payments that are processed by the Automated Clearing House (ACH) Network. While credit cards, debit cards, and checks are all excellent payment options like online payment gateway for your customers, ACH payments provide you with even more flexibility and the potential to increase profits. Here's a quick rundown of what ACH payments are, what they aren't, and why you might want to accept ACH transactions for your business.

What Are ACH Transactions?
Consider an ACH transaction to be the electronic transfer of funds from one bank account to another. These funds are routed through the ACH network, which connects thousands of financial institutions across the country.

ACH is a quick, secure, and low-cost method of transferring funds between bank accounts. When a customer pays you via ACH, the electronic funds transfer (EFT) will appear as a direct deposit or direct payment in your bank account.

ACH transactions, on the other hand, are not the same as debit card payments, eChecks, or wire transfers. Furthermore, while they are electronic payments, it is important to note ...
... that not all electronic payments are ACH payments. Credit and debit card payments, for example, are electronic, but they are not ACH transactions. ACH refers to bank account transfers.

Consider ACH to be an electronic version of a paper chequebook, but with several distinct advantages. ACH payments are a convenient, modern alternative to cash, paper checks, and even credit or debit card payments.

How Do ACH Payments Work?
What happens during the ACH payment process is as follows:

Initiating the ACH payment
To initiate an ACH transfer, you must first obtain permission from the customer. They must sign an ACH authorization form, just as they would a paper check or a credit card receipt (or verbally agree to it during a recorded phone call). Customers can agree to set up a one-time payment, a recurring payment, or even a series of payments on specific dates with ACH.

Receiving the ACH payment
Your bank account will electronically withdraw the agreed-upon payment from your customer's bank account once an ACH transfer has been authorised. Previously, you had to wait anywhere from 3-5 days to receive an ACH payment; however, new rules are being implemented to allow for same-day processing. The only issue with ACH payments is "bounced" transfers, which occur when there are insufficient funds in your customer's account. ACH transactions, like paper checks, cannot be processed unless there is sufficient funds in the payer's account.

How are ACH payments different from eChecks, debit card transactions, and wire transfers?

While these electronic transactions appear to be similar on the surface, they are actually handled very differently. Here's what you should know:

ACH payments vs. eChecks:
The terms "eCheck" and "ACH payment" are often used interchangeably, and they both transfer funds electronically between two bank accounts. The distinction is that eChecks are one-time EFT payments, whereas ACH transactions rely on customer bank account information stored with the merchant (this is how recurring ACH payments are possible).

ACH payments vs. debit cards:
Despite the fact that both ACH and debit card transactions draw funds from a customer's bank account, they do so in very different ways. What matters most to you as a business owner is that these payments are processed by a different best online payment gateway, which means that an ACH transfer will have very different transaction costs and dispute resolution policies. When it comes to ACH fees (versus debit or credit card transaction fees), the difference frequently works in your favour.

ACH payments vs. wire transfers:
A wire transfer is handled by two separate banks that collaborate to verify funds and complete the transaction. If you've ever received a wire transfer, you may have noticed that both the sender's and your bank charged a fee for the transaction. This reflects the additional work required by each bank to set up the transfer. ACH transactions, on the other hand, are routed through the Automated Clearing House, which can be thought of as an electronic highway connecting financial institutions. Instead of two banks having to "build" their own road to transfer funds, they can simply add them to the flow of payments already flowing through the ACH "highway." ACH automates and batches the flow of payments between financial institutions, resulting in cost savings for you!

Why a Business Should Accept ACH Payments
ACH transactions are one of the most convenient and cost-effective ways for businesses to accept payments. Customers and business owners alike benefit from ACH transactions because they are quick, flexible, and often less expensive than accepting credit or debit cards. Here are three major advantages:

Lower transaction fees
ACH transactions typically have lower fees, which add up to significant cost savings over time. The more money you made, the wider the gap grew.

Convenience and speed
With ACH payments, you no longer need to go to the bank to deposit paper checks. Depending on your industry, this benefit could save you time, allowing you to focus on increasing profits rather than managing them.

Recurring and flexible billing
The beauty of ACH payments is that they can be set and forgotten! This ensures a consistent flow of revenue to your company: you can set up ACH payments on a one-time or recurring basis, or even schedule them for specific future dates.