After exploring the different payment methods available to your business, you might be leaning toward ACH transfers based on its added security and ease of use. But how exactly do ACH transfers work and who uses them? Transferring money through the ACH Network allows businesses to keep better financial records and pay vendors in a timely manner. Since processing payments electronically cuts costs, what types of fees can you expect with ACH payments? We delve deeper into ACH transfers in this article to provide you with information about this popular payment method.
What is an ACH Transfer and How Does it Work?
An ACH transfer is a payment method for transferring funds from one bank account to another. When you send payment, the funds are processed and verified through the Automated Clearing House (ACH) Network, and then issued to the receiving account. Think of the ACH Network as the middleman for payment transactions, securely handling money, ensuring there are sufficient funds, and verifying account information before handing over the payment.
You can opt to transfer money using ACH debit or credit. Basically, ACH debit transactions occur when money is taken from your account, and ACH credit transactions allow you to send money from one account to another. To set up either type of ACH transfer with a vendor or another business, you must first provide your bank account information and routing number to the receiver’s bank. Once both parties have set up a secure ACH transfer through their accounts, money can be sent back and forth.
Who Uses ACH Payments?
Even if you are not familiar with ACH payments, chances are you have already used them to pay bills online, process electronic checks, or pay an online vendor. Payments through the ACH are so common, in fact, that a 2016 AP study showed that 83 percent of businesses have used ACH transfers in some capacity. Businesses can rely on ACH transfers for their security and protection, and as a way to automate their AP processing to reduce costs. ACH payments are used by businesses for invoice and payment processing, by vendors to accept payment, and by online companies or vendors to accept electronic payment from customers.
How Quickly Do ACH Transfers Process?
ACH Payments are typically settled within 24-48 hours. Batches of transactions process at once, which can lead to some delays. However, a recent announcement by the National Automated Clearing House Association stated that same-day transaction processing could be available as early as 2018. This same-day processing may incur an additional fee but will allow businesses to transfer funds much faster.
Does ACH Charge Fees to Transfer Funds?
ACH transfers are often less expensive than other payment methods, because they use direct bank account and routing numbers to transfer funds. You can avoid service fees associated with other payment options like wire transfers by using this method. Additionally, your business can drastically reduce its outgoing payment expenses by eliminating paper checks and adopting a digital payment system like ACH transfer.
Many banks offer ACH transfers as part of their digital services, some charging fees for the service and some offer it free of charge. Depending on the banking institution your business uses, your fees may vary, so it is a good idea to verify with your bank before setting up an ACH transfer.
ACH as a Secure Payment Method
ACH transfers are considered to be one of the safest and most reliable payment systems available, according to NACHA, the governing body that oversees the ACH network. All ACH Network payments are protected under federal law in case of fraud or error, meaning your business’s funds are kept safely in your control. The high level of security and control that ACH offers accounts for the growing number of businesses relying on it as their primary payment method.
In addition to fraud protection, using this method means you can stop or alter your payments through the ACH Network even after sending the funds. If your business sends incorrect information, you can review and stop the transaction, giving you tighter control over your funds.
ACH Transfers for Secure, Safe, and Practical Business Payments
ACH transfers process within a few business days but offer a higher level of protection than many other payment methods, making the wait worthwhile. For a secure and easy way to process and receive funds, many businesses and vendors are turning to ACH payment. Vendors can track payments and send invoice information that your business can record digitally. Between relying on protected transactions and maintaining control over your funds, ACH transfers should be an integral part of any AP Automation strategy and should be used in conjunction with other payment methods like Virtual Cards and Bank Wires.