Do you collect recurring payments from customers or clients? Does your business accept large ticket purchases for products or services? If so, your business should be accepting ACH payments!
In an ever-changing world of financial transactions, ACH transactions play pivotal roles in streamlining payments, enhancing security, and advancing business operations. Whether you are seeking to automate your payments, improve cash flow, or enhance payment processes, understanding ACH payments is the first step towards success!
ACH Payments
So, what exactly are ACH payments?
ACH is a type of electronic payment that can be processed as a credit transfer or direct debit. ACH payments are sometimes referred to as eChecks, direct debit, or bank drafts.
Short for the National Automated Clearing House Association, ACH is the primary network used for processing electronic transactions between participating financial institutions. ACH payments can be used for a wide range of transactions. Types of ACH payments include:
- Consumer bills
- Tax refunds
- Tax payments
- Retirement and investment account contributions
- Commercial purchases
- Charity donations
- College tuition payments
- Funds sent between family and friends
The benefits of accepting ACH payments:
Cost-effective: ACH payments are often more affordable than credit card transactions. Funds are transferred directly from one account to another. This results in lower processing fees and businesses can reduce their payment processing costs.
Increased efficiency: Since ACH payments are electronic, they are faster and more convenient than traditional paper checks. This makes the payment process simpler and reduces the time it takes to cash a check or go to the bank. ACH transactions can also be put on autopilot! After you collect an authorization form, payments can be made as many times as needed.
Enhances security: ACH transactions are one of the safest methods for accepting payments. ACH payments are subject to strict procedures and encryption protocols, which makes them highly secure.
Flexible payment options: Businesses can use ACH transaction for various types of payments, including recurring, one-time, billing, and payroll. Unlike wire transfers, ACH debit gives you full control over the exact transfer date, frequency, and amount.
Higher collection rates: By accepting ACH payments, you can increase your collection rates by as much as 10-15%. No need to worry about funds not being available due to credit limits or expiring cards.
ACH Direct Deposit
An ACH direct deposit refers to the deposit of funds electronically into a bank account rather than through a physical, paper check. The most common types of ACH direct deposits include salary payment, tax returns, and government benefits. Direct deposit via ACH is a simple wire transfer that is typically received in 1-2 business days. It is an ideal option for a small business who wants to save money and pay employees expeditiously!
If you’re a small business owner who is juggling several forms of payments throughout the year, setting up direct deposits through ACH makes the process much simpler!
In order for the funds to be transferred from the payer, the recipient must provide the name of their bank, account number, and the bank’s routing number to the person or business making the deposit. If needed, they may provide a voided check which has the same information printed on it. It can take a few days for direct deposit to be set up. Once the depositor has the information, they enter it into their banking system. Funds are transferred electronically and are deposited into the recipients account at midnight on the payment date. Since the funds clear automatically through the ACH, they are available immediately.
ACH Direct Payment
Direct payments can be used by individuals, businesses, and any other organization that is sending money. Examples would be sending money to a friend, purchasing a product or service, and paying bills. In an ACH direct payment transaction, the person sending the money sees the ACH debit appear in their bank account. This debit shows to whom the money was paid and for what amount. The person or entity receiving the money registers it in their bank account as an ACH credit.
Unlike traditional payment methods that might involve checks or cash, direct payment is typically more secure and efficient, ensuring that funds are transferred swiftly and accurately. This method is particularly beneficial for managing recurring payments, as it streamlines the payment process and minimizes administrative overhead.
How to set up ACH Payments
- Set up an ACH account with GMS
At GMS, we will guide you through all the steps needed to accept ACH payments at your business. To access the ACH network, you’ll need to provide some basic business documents to get your account approved. Contact us today to get started!
- Request for customer authorization
You must accept permission from the customer to debit their account before accepting any one-time or recurring ACH payments. This can be done by collecting a digital or physical authorization form. GMS will provide you with a sample copy if you don’t already have one!
- Collect the account details
After the transaction has been authorized, you will need to make sure that all the account details have been collected, including the bank name, account number, routing number, and the customer’s name. You will only need to document this one time for recurring payments.
- Submit your payment details
Lastly, you will need to submit the ACH transaction to be processed through the ACH network. This will be done through a payment gateway, virtual terminal, software, or third-party method.
- Get paid!
After the funds have been collected from your customer, your ACH credit will be automatically deposited into your bank account. The ACH debit normally takes 3-5 business days to fully clear depending on the type of transaction. ACH credits can be made the same day, next day, or as two-day payments.
ACH returns
An ACH return is the equivalent of a bounced check. An ACH return tends to happen when a registrant enters bank information to make a payment, but the bank rejects the transaction for a variety of reasons.
Since ACH transactions do not process in real-time like a credit or debit card authorization, they can be returned or rejected after the transaction is assumed complete. When this happens, an ACH return code explaining the issue is generated, and the RDFI (Receiving Depository Financial Institution) notifies the ODFI (Originating Depository Financial Institution) with a three-digit return code.
Each return code is structured as an “R,” followed by a two-digit number. Though there are 85 return codes for ACH payments, most businesses will primarily deal with the same handful of return codes.
The 10 most common return codes:
- R01: Insufficient funds in the transaction account
- R02: Bank account closed
- R03: No account or unable to locate the account
- R04: Invalid account number structure
- R05: Unauthorized debit (caused by consumer using a Corporate SEC Code)
- R06: ODFI requested a return
- R07: Customer revoked authorization (transaction is disputed by the account holder)
- R08: Payment stopped (also known as a stop payment)
- R09: Uncollected funds
- R10: Originator not known and/or not authorized to Debit’s Receiver’s Account
Download our Free Ultimate Guide for ACH!
Learn all you need to know about ACH payments and how to get started at your small business today! Our free guide includes:
- Types of ACH transactions
- What is ODFI/RDFI?
- How to set up ACH
- Sample Authorization Form
- Benefits of ACH
- ACH returns
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