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Small Business Insight

As A Business Owner, What Should You Know About The ACH Process?

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Whether you've recently upgraded your business's payment technology from a credit card scanner to more modern electronic methods like Automated Clearing House (ACH) deposits or you're just starting the research process, you may find yourself shocked by the speed with which money can be transferred across the globe in the internet age.  

The basic banking processes that go into depositing a check and withdrawing funds from the source account can seem rudimentary in comparison to electronic deposits, and even those who use ACH for a wide variety of business and personal transactions may find themselves mystified when asked to explain how it works (or how its deposits differ from "regular" credit or debit card transactions). How can the many advantages of ACH transactions push your business forward? 

Read on to learn more about the ACH process from start to finish, including how your accounts are debited, how payments can be returned, and some of the advantages that may be posed by auto pay arrangements.

What Do ACH Transactions Consist Of? 
At its most basic level, an ACH transaction is simply an automatic transfer of funds from one bank account to another. Once initiated, these transactions head through the Automated Clearing House, a batch processing system, rather than being moved directly from the initiating bank to the receiving bank (which can be a more time-consuming and expensive process). Depositphotos_144102441_m-2015.jpg

Many vendors and lenders prefer ACH transactions over other types of transactions due to their simplicity, their ease of tracking, and their efficiency. Because ACH transactions are automatically listed by vendor name, rather than simply "Check - Amount," it can be easy to see at a glance who you've been paying (or who's been paying you). No longer will you need to manually enter transactions in your accounting or reporting software; with the click of a button, you can download your daily, weekly, monthly, or annual ACH transaction list. 

In general, ACH transactions take a day or two longer to clear than credit card transactions, but are also much more secure, limiting the risk of a breach of your client or customer data. This can also mean that ACH transactions carry lower fees than credit or debit transactions, while saving money and resources by essentially eliminating the production and mailing costs of paper checks, invoices, and other billing documentation.

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How Are Your Accounts Debited And Credited In An ACH Transaction?
When you initiate an ACH transfer from your business account, you're not "pushing" the money yourself, as you might assume; instead, you're providing the end user with the authorization to debit the funds from your account. Upon this debit signal, the funds are then withdrawn from your account, sent through the clearinghouse, provisionally deposited in the end user's account awaiting batch processing, and cleared a few days later. 

Like debit transactions, ACH transactions can be returned for insufficient funds. When the transaction takes place, approval can seem near-instant: however, this isn't a "true" approval, but only a verification that the routing and account numbers match the customer's name and that the account exists. It is possible to check for sufficient funds at the time an ACH withdrawal is made, but this generally involves a much higher fee that may not be worth it to you except on very large or unusual transactions. 

What Are The Differences Between ACH and Debit Transactions?
On the surface, these types of transactions can seem interchangeable. However, there are some key differences you may not yet be aware of. Although both ACH deposits and debit transactions are withdrawn directly from the customer's bank account, the authorization--and therefore the processing partner--for each are different. 

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In a debit transaction, the customer is giving you a one-time authorization to debit their bank account through their debit PIN or a "credit" swipe. In an ACH transaction, the customer is providing the same debit authorization by turning over their routing and account numbers, more similar to a paper check. This means that the speed with which a transaction can be made, the associated costs, and even the processing partner can vary between debit and ACH transactions based on the account settings.

How Do ACH Automatic Payment Arrangements Work? 
Automatic payments can provide all parties to a transaction with an efficient and workable way to manage subscriptions and regular services. From the business end, setting customers up on an autopay system can ensure a more reliable stream of income. Your customers will be required to fill out an ACH authorization form (or complete this form online), giving you the ability to automatically deduct a pre-authorized amount each month. Until this authorization is revoked, your autopay will remain in place. 

From the customer standpoint, juggling multiple bills and due dates each month can be an added stressor to a busy life. Putting regular expenses on autopilot through autopay can take tasks away from an already-full plate and minimize one's risk of forgetting to pay an important bill. 

By keeping some of the advantages of ACH transactions in mind when making decisions about your business's payment processes, you'll be well-equipped to keep your business a lean, clean, cash-flow-positive machine despite any economic or logistical obstacles that may come your way. 

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