Businesses rely on security electronically and physically. The days of paper checks and cash almost seem archaic for businesses, especially when it comes to paying the bills. ACH or Automated Clearing House is a highly sophisticated network of financial transactions between vendors, financial institutions, banks, and businesses. ACH is responsible for processing large volume payments, including payroll.
How ACH Payment Processing Works
ACH works on a transaction-by-transaction basis. It starts when a receiver authorizes an ACH debit on a bank account or credit line. The receiver is the account holder who grants access by ACH. The originator is the company requesting the funds, such as a business vendor or supplier. The receiver must provide prior authorization in order for ACH to process forthcoming transactions, which can be written or electronic. Once authorization is received, the payment is issued to the originator. Although it sounds like a long, drawn out process, an ACH transaction is typically accomplished in the same time as a credit card transaction.
Different Uses of the ACH System
There are a variety of uses for ACH payment processing, including:
• Business-to-government payments
• Business-to-business payments
• Direct debit of a customer's account (e.g., mortgage payments, utility payments, rents, etc.)
• Direct deposit to a customer's account (e.g., payroll, government payments, tax refunds, etc.)
• eCommerce payments
• Federal, state, and other local tax payments or refunds
Benefits of ACH Payment Processing
Employers, employees, businesses and their clients all benefit from the use of ACH. This batch-based process is inexpensive, faster, and more secure than any other type of electronic payment service available today. And, of course, it is far more safe and environmentally-friendly than processing paper checks. ACH payment processing has numerous advantages:
• Security: Approximately nine million Americans fall victim to identity theft on an annual basis, according to the FTC. Unfortunately, 85 percent of these thefts are the direct result of identity thieves obtaining critical data from bank statements, paper checks, and credit card bills. ACH transactions are 100 percent electronic, so there are no paper forms or statements processed for identity thieves to access.
• Fund access: When employers pay via paper check, employees have to take the time to deposit the check and then wait the specified time for the check to clear. This can mean an employee must wait three to five business days to access his paycheck. ACH payment processing, on the other hand, makes funds immediately accessible after they are deposited into an employee's account.
• Convenience: Business owners who have recurring payments can set up an automatic account with an ACH provider. That provider can then automatically make payments on the business's behalf for vendor payments, retail payments, service agreements, utility bills, and salary payments to employees, thus reducing the amount of time spent each month on accounts payable.
• Cost-effective: The biggest benefit of ACH, aside from security, is that it is cost-effective for businesses. Although ACH has associated fees, the costs associated with accepting credit cards and creating, purchasing, and using paper checks costs a business considerably more-especially when a business factors in the cost of man hours spent on accounting and paper check management.
It's no wonder that ACH is the preferred payment method for companies of all types and sizes. Learn more about the benefits of ACH payment processing for your business by visiting merchant payment processing experts.