In the modern age of business, the more channels of payment you have for your business, the better it is. When customers see various options to play with and are given their preferred payment method, it improves customer relations. It brings in more revenue to the business. People initially compared ACH payments to wire transfers. Recently, ACH payments have added functionality that has made merchants rethink its use. Many people have already experienced ACH payments and don’t even know it yet. A few examples of this are receiving salary each month, transferring funds directly to another person online, and automatically recurring bills of subscriptions you may have. ACH is a digital way to transfer funds from one account to another. These payments have made it much more efficient to send or receive funds. This article will address some ACH payment FAQ so you can better understand them.
What are ACH payments?
ACH is an abbreviation for Automated Clearinghouse. A clearinghouse is an intermediate stage where the funds are stored till they receive approval to be sent into the receiving account. In the U.S., Nacha manages ACH processing. ACH payments transfer funds electronically between banks, using only bank account and routing numbers. Not even a credit card is needed for the transfers, making them very convenient. Two main types of Ach transfers are known, they are;
ACH Debit
These transactions pull or withdraw funds from another account. These payments process automatically as your bank charges a fee to a customer’s account. The customer does not necessarily have to approve the amount every time it is processed automatically.
ACH Credit
ACH credit is the part on the customers’ side. The customer approves automatic payments, usually to a recurring membership or subscription. The fee is deducted from their account and sent to the merchants after a specific time.
ACH payments do not depend on checks or credit cards for their conduction. Therefore, fraudulent statements or unauthorized use of cards is not possible. Consequently, it is a fast and secure way for businesses to get their payments. The new ACH payment method allows payments up to $100,000. This makes it an excellent option for business-to-business payments as well.
The only major downside to ACH payments is the time they can take to clear. ACH payments can take up to five business days. Businesses that run on thin margins or tight cash flows can find this extremely troublesome. However, same-day ACH transfers are also possible now. Merchants have to talk to their banks about them, but they are usually reserved for their top clients or have more fees.
What is the difference between ACH and e-Checks?
There is always confusion between e-checks and ACH payments. But e-checks are just like regular checks; they are just electronic versions and sometimes images of checks. Like a regular check, e-checks need to go through a similar settling procedure. But ACH payments, on the other hand, are completely automated. They are settled in batches, which happens three times a day. People confuse e-checks with ACH payments because e-checks also use ACH at two steps in their processing.
Firstly, merchants can convert e-checks into ACH debit transactions and send them through the path of ACH instead of e-checks. But for this, merchants have to notify that the check will be appropriately converted. The notice is under the broader term of electronic funds transfer, but processors usually use ACH for debit pull.
The second time ACH is used is in the last stage of the processing of e-checks. When the banks finally transfer the settled money from the e-check to each other, the money is usually sent through ACH.
What is an ACH hold?
When an ACH payment is requested, the bank may reserve the amount for a while upon authorization of the owner. This happens because ACH payments take time, they can take from three to five days to clear. The transaction needs to be removed from the clearinghouse, for example, Nacha in the U.S., before it can be spent. The bank holds the amount to make sure it is not spent before it is cleared.
How long does an ACH payment take?
The standard hold period for an ACH payment is three to five days. Customers and merchants fail to account that this is specified in business days. Furthermore, the ACH payments are batched and sent to the network at the end of the day. This means that the count of the days starts the following day. When all of this is taken into account with the weekends, the payments usually take a week to clear, especially those initiated somewhere in the middle of the week.
How are Voiding and Crediting payments different?
An ACH payment can only be voided till it hasn’t been batched and sent to the ACH network. When an ACH payment is voided, the transaction is not submitted to the ACH network and canceled. If the batch deadline has been missed, the payment has to be credited to the consumer and can no longer be voided. But all merchants cannot proceed with crediting payments to customers. Crediting charges require an extra amount of money in the merchant account. Therefore, many merchants find it easier to refund the amount using checks or discount future purchases.
How do I avoid returned ACH payments?
Customers may contest a payment when they don’t recognize their origin. It’s best to tell your customers how to identify your payments beforehand so they don’t charge back based on a misunderstanding. Another way to avoid contested payments is to provide a number on which customers can contact in case of some trouble. This reduces the chances of getting a chargeback from the bank and settling things directly with the customer.
To reduce the chance of getting a chargeback due to an error made by your employees or yourself, try to get dual authentication of account numbers for online payments. Another way is to train staff correctly by teaching them how to handle online payments. This would reduce chargebacks that occur due to errors on your side.
