ACH payment processing

Adding Automated Clearing House (ACH) services as an option for your business can help reduce payment processing expenses and allow customers to make electronic payments–even if they don’t have a credit card.

The most significant advantage of accepting ACH payments is the potential cost savings for your business. As you know, the hassle of writing paper checks can bring shoppers and checkout lines to a standstill. And credit card processing typically involves fees ranging from about 1.5 percent to 3.5 percent. However, ACH transactions don’t go through credit card networks. Instead, they’re transmitted electronically for faster authorization and are batched to help keep expenses down.

When your customer uses an ACH network to pay, the funds are withdrawn directly from their bank account and transferred to your business account. This option is equally effective for one-time customers and clients who regularly use your services.

How do ACH payments work?

Typically, ACH payments are deducted electronically from a bank account for debts such as mortgages, car loans, or insurance payments on a given date. The ACH network is ideal for recurring bill payments since you only need to establish a connection between a sender and receiver once. If your business provides ongoing personal or professional services like personal training, piano lessons, or lawn maintenance, billing clients via ACH payment processing could be a good fit for your business.

Although governed by different authorities, the Automated Clearing House process is similar to a traditional paper check process: clients provide their bank routing and checking account numbers. Subject to ACH network rules and transfer regulations, the payment is verified and sent electronically. The ACH network is exclusively for payments made in the United States and Puerto Rico. Although you can use your small business’s bank account as a funding source, you cannot initiate payments via credit or debit card.

Can my business accept ACH payments?

You’ll need to have a business account set up in order to accept ACH payments. The ACH payment processing method only transfers money from one bank account to another and can be accepted through multiple channels, including:

A virtual terminal, allowing you to log into an online web form from any device to process in-person, telephone, or mail orders
An online checkout form on your eCommerce website
A POS system with integrated check readers to electronically deposit checks to your bank account, eliminating trips to the bank to deposit checks manually

Once your business offers ACH processing, your customer provides details of a working bank account (with sufficient funds to cover payments), including the bank’s routing and account numbers.

While Clover doesn’t currently offer ACH payment processing services, our partnership with our parent company, Fiserv, enables us to connect you to the tools and resources you need to run your business. Learn about Fiserv’s ACH solutions here.

Wire transfers versus ACH payment processing

Wire transfers and the ACH network are popular ways to send and receive money electronically. They’re so common, in fact, that people often think they’re interchangeable. As a business owner, it’s important to understand how these two platforms differ.

A wire transfer is an electronic payment method that lets you move money between banks quickly. The primary selling point is speed, with most domestic transfers taking one business day. You may wait anywhere from one to five business days for international transfers. Each wire transfer is handled individually by partnering banks—at the request of the sender and receiver. Although some of the process can be automated, you still need bank tellers or third-party service cashiers to verify receipt of payment.

With ACH payments, senders and receivers also move money between banks. Settlements typically take two to three business days to complete, although “same day” processing may also be an option depending on the financial institution. Unlike wire transfers, where banks act as middlemen, the ACH network directly connects sending and receiving parties. The entire process is automated–there’s no need for direct human intervention.

If you plan to do large, one-off transactions, wire transfers are a great option. In most other cases, ACH is the better option. While sending money can take a little longer and there’s always the outside chance that transactions can be reversed, ACH payments are still easier to use. Plus, they typically cost far less than wire transfers.

How secure is ACH payment processing?

Like all payment technologies, there are certain risks with ACH. Even cash doesn’t protect you 100 percent from theft or fraud. However, users can take steps to protect themselves when sending or receiving payments through the ACH network.

ACH is regulated by the federal government and managed by the National Automated Clearing House Association (NACHA). To register within the network, users must provide:

Usernames
Passwords
Bank details
Routing numbers

These steps are comparable to what one finds in the credit card industry; however, ACH payments aren’t required to follow PCI-compliant standards. Merchants are encouraged to employ additional layers of protection, including:

Merchant-specific registration

Users must formally create individual relationships with payees and recipients by supplying the necessary routing number and bank account information.

Micro validation

After creating a relationship with a merchant, the payment processor adds two “micro-deposits” into a user’s bank account. The user must then verify the exact penny amount of those deposits to begin sending or receiving money. Validation is similar to setting up a PayPal account.

Tokenization and encryption

Some payment providers include data encryption and tokenization with their ACH offerings. These security steps are similar to what you already find in the credit card industry.

Secure vault payments

Secure Vault Payments (SVP) is an online payment option. Users can initiate ACH payments without sharing sensitive financial data on the merchant’s website. Users authorize all transactions directly through their online bank accounts.

Do consumers prefer ACH payments?

Using the ACH network can provide users with a sense of greater control over their finances. Many consumers are comfortable with Direct Deposit for payroll and other monthly income, while a few prefer the “hands-on” experience of dealing with paper checks.

As a business owner, you can remind customers that ACH payments are a convenient way to pay for your goods and services. Likewise, adding ACH as a payment option can improve efficiency and increase sales.

To learn more about solutions to help your business thrive, contact a Clover Consultant.

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Editorial Team

Topics: Payments & processing

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