Efficiency of Automated Clearing House (ACH) Payments

Efficiency of Automated Clearing House (ACH) Payments

An electronic funds transfer platform which is being run by the National Automated Clearing House Association (NACHA), the automated clearing house (ACH) is a convenient payment system dealing with tax, payments, payroll, tax refunds, direct deposit, consumer bills, and many other payment services.

The numerous benefits of the use of the Automated Clearing House network to enable money transfers electronically have enhanced the efficacy and suitability of business and government transactions. Very recently, money transfers by this system have made it much easier and inexpensive for people to transfer money to others from their respective bank accounts directly by e-check to accept ACH payments online or direct deposit transfer. This system for the individual banking services had classically taken 2-3 business days for taxes to clear, but beginning from the year 2016, NACHA has been presented in three phases for the ACH settlements to happen the same day. Phase3 was launched in May 2016 and it demands Receiving Depository Financial Institutions (RDFIs) to make Automated Clearing House credit and debit transaction that very day to be available to the receiver for removal by 5 p.m. according to the RDFI’s local time.


Let’s find out more about the ACH system and ACH payment processing

What is Automated Clearing House (ACH)?

Automated Clearing House is actually an electronic system of financial institutions which enables financial transactions in the US. This network works as the financial hub and assists organizations and people transfer money from one bank account to the other. These kinds of ACH dealings comprise of direct deposits and payments, such as B2B transactions, consumer transactions, and government transactions.

What are the Benefits of the ACH Network?

The Automated Clearing House system is one that groups up the financial transactions together and processes them at various regular intervals during the entire day. This enables one to accept ACH payments online which prove to be extremely fast and convenient, with mean ACH debit dealings settling within one business day, and mean ACH credit transactions settling within about 2-3 business days. But because of the recent changes to NACHA’s functioning rules, this system allows for settlements that same day of most ACH transactions today! The electronic payments are really popular for many reasons:

  • Firstly, the benefits can be seen from the fact that they are electronic. The easy ACH payments use really little resources than the typical paper checks. This network does not require the expenses of ink, paper or the fuel to transfer checks, labor and the time to deal with and deposit the checks.
  • Electronic transactions are also a lot easier to keep track of the various expenses and income. With each such transaction, the banks generate an electronic record. The history of the transactions made can also be accessed by the personal financial management or the accounting tools.This network supervises more than 90% of the entire value of all the electronic payment transactions in the US. It has been reported by NACHA that the ACH system upsurges by about an average of $40 trillion each year.

How Does the ACH Network Work?

So how does ACH payment processing work? In the Automated Clearing House network, the initiator starts to make a direct deposit or payment transaction by using the ACH processing service. These initiators could be organizations, individuals or government bodies, and these ACH transactions could be debit or credit both. The bank of the originator or the originator’s depository financial institution (ODFI), basically takes the transaction and groups it up together with the other such ACH transactions so that they can be sent out regularly throughout the day.

The ACH operator, who is a clearinghouse or the Federal Reserve, then accepts the group of ACH dealings from the ODFI along with the originator’s dealing included. The operator then sorts the group and makes dealings available to the financial institution or bank of the intended receiver, or even to the receiving depository financial institution (RDFI).  Next, the receiver’s bank account accepts the transaction, thereby merging both the accounts and completing the method.

What is NACHA?

NACHA is basically the supervisor of the Automated Clearing House network which gives the networks its administration, management, rules, and development. The association handles more than 10,000 such as financial institutions and is a self-functioning institution. NACHA basically has a set of fixed operating rules which are intended to enable progress in the scope and size of electronic payments with the payment services ACH payment.

Why do Businesses like to use ACH Payments?

There are a lot of ways in which businesses benefit from the sending and acceptance of funds via ACH.

  • Easy to handle: Customers often pay by check. This means that the businesses then need to wait for the arrival of the mail after which they then need to credit the check with a bank. Sometimes it even happens that the payments might go missing along the way and the entering of such payments into a recordkeeping network requires great labor. The electronic payments via the ACH check processing are very reliable and are received quickly. It doesn’t require one to send the checks to banks and wait for a number of days just to find out which checks bounced.
  • Inexpensive: There are various businesses that accept credit card payments. However, it costs a lot lesser to get into an ACH payment system than that of a credit card. Especially when it comes to the collection of frequent payments, the savings add up, and programming such payments literally just increases its benefits. But it is important to know that the Automated Clearing House system does not really give the user a real-time deny/approve reply like that of a credit card terminal system would.
  • Long-distance payments: With the usage of ACH solution, businesses can easily accept payments remotely, even though the same benefit can be achieved from credit cards. For customers who don’t own credit cards or they don’t prefer sending their information regularly, ACH would be the solution they are looking for. 

Why do Consumers Like Payments With ACH?

Apart from businesses, even consumers ACH collection services

  • Easy payments: With the ACH network, there is no requirement to write down checks or the reorder checks when they end, and even get the checks in the mail and accept ACH payments instantly. No additional charges apply to this for the consumers on their credit cards. The funds are transferred directly from their respective bank account.
  • Autopilot: When the customers use Automated Clearing House payments, they don’t need to keep a check on their bills or anything at all. For the better or even the worse, everything functions on autopilot.

How Can ACH Payments be accepted from Customers?

In order to accept the payments by Automated Clearing House, it is important for the customers to partner up with a payment processor. People might already be doing this but they’re probably not making use of the ACH collection services yet.

To begin with, one may start by asking the current service providers for you whether they can deal with the ACH payments for you. These can include your bank where you place your business accounts, the corporation that practices credit card payments for you or even the provider of your accounting software which are the programs that permit you to create statements and accept ACH payments.

How Much Do ACH Payments Services Cost?

No matter what the size of a business may be, Automated Clearing House is just the right option for you. Naturally, the cost for you would be much lesser if you own greater volumes but this is also the same case with credit card payments. It has been reported by NACHA that the average costs for the ACH payment services come around 11 cents/transaction. As far as the smaller businesses are concerned, service providers might increase their charges to three to five times that amount. The costs for this system might compete with those of proceeding payments via debit cards which depends on your mean ticket size.

>Payments on the Same Day:

Mostly, the typical payments via Automated Clearing House take about 2-3 working days, though holidays and weekends might slow the process down. In today’s world, this might come off as too slow of service for payments. Therefore, in 2016, they came out with their ‘same-day’ ACH payments which has been expanding and gaining more popularity. So one can expect to see a reduction in the ACH payment processing time.

Users are often confused about how to accept ACH payments. After reading this article, the answer to that is pretty clear. The ACH payment gateway has widespread benefits for businesses as well as consumers for a safe and instant payment system since it can help with various payment services such as taxes, payments, payroll, tax refunds, direct deposit, consumer bills, and many other payment services!

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