How To Accept ACH Payments As a Small Business

As the digital commerce industry expands, both businesses and customers have been presented with a multitude of online payment options.

ACH (Automated Clearing House) payments, being a predominant choice when making payments online, provide a seamless, rapid, and cost-effective solution, enabling businesses to retain more of their earnings while managing the business.

How do ACH payments work?

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ACH payments enable institutions to move money domestically and globally, eliminating the need for paper checks, credit card networks, wire transfers, or cash. The electronic payments are facilitated by the Automated Clearing House network.

However, ACH may not be suitable for every business and customer. ACH payments are a fitting option if you are a service-based business (e.g., plumber, electrician, consultants, etc.) or if you have recurring payments (e.g., monthly subscriptions, monthly rentals, etc.).

Steps to set up an ACH payment with your customer

Gather the customer’s bank account information, or if you are a vendor, provide your bank account information to the client. You require the bank routing number and account number for both the sender and recipient. Typically, this information is obtained through a third-party platform.
Enter the payment amount into the platform.
Arrange for the payment to be processed on the designated payday.
The fee for receiving the transfer may vary based on the platform and could be paid by you, the payer, or you may be charged a flat fee for using the software without any per-transaction fee.
ACH transfers are handled during bank operating hours and are subject to daily cut-off times (the platform will inform you of the expected processing time and when the transfer will reach the recipient’s bank account).

Typically, ACH payments take one to two business days to be processed. However, ACH offers a same-day service that generally involves a higher fee for the sender. Some payment services provide instantaneous bank-to-bank transfers through ACH and other networks without incurring additional fees.

The process of making ACH payments

The process of ACH payments commences when the originator, who can be a consumer, business, or government agency, initiates the transaction. This can be either a deposit or a credit/debit payment.
Once initiated, the bank or payment processor handling the initial phase of the ACH payment process, known as the Originating Depository Financial Institution (ODFI), submits an entry.
Financial institutions usually transmit ACH entries in groups, three times a day during normal business hours. The groups are sent according to a prearranged schedule to an ACH operator, a designated institution within the ACH network authorized to facilitate the transfer of funds between the originating and receiving bank accounts. The Federal Reserve banks and the EPN are recognized as national ACH operators.
Upon receipt, an ACH operator organizes the batch of entries into deposits and payments and separates payments into ACH credit and debit transactions to ensure that funds are transferred correctly.
Once sorted, the ACH operator sends the entries to the designated bank or financial institution, referred to as a Receiving Depository Financial Institution (RDFI).
The RDFI must verify that the ODFI account has enough funds to cover the transaction before processing it if the ACH transaction involves the transfer of funds from the ODFI’s account.
At last, upon receipt of ACH payments, the receiving financial institution either adds or subtracts from the receiving bank account based on the nature of the transaction.