ACH payments, in which funds are drawn from a customer’s bank account over the ACH (Automated Clearing House) network, offers some distinct advantages over processing paper checks. Specifically, ACH payments can save you both time and money.
While ACH seems simple, the underlying processes are actually somewhat complex, involving a seven-step process with six different entities. These entities include the Originator – the person or entity who initiates the transaction; the Orginating and Receiving Depository Financial institutions (two separate entities); ACH operators and receivers.
As you might imagine, the communication and coordination of funds across so many parties is a complicated interplay; but as a business accepting ACH payments, taking time to understand how to set up ACH payments can help to streamline the onboarding process and lower the risk of ACH rejects.
If you’re looking to get started on setting up ACH payments for your business, here are four crucial things you need to know.
In order to accept ACH payments, you will first need a merchant account with a Payment Processor, who helps to connect the various pieces that constitute an ACH transaction. While setting up a merchant account isn’t complicated, selecting the right Merchant Account Provider for your business can seem that way, due to the number of options available. From provider to provider, there are lots of variables that can affect your experience. For starters, the majority of Merchant Account Providers lock their customers into contracts that may range from two to six years, and often there are penalties for early termination. However, some offer month-to month-services. Not only does a no-contract provider allow you to make changes without penalties, but you may also find that a provider who has to earn your ongoing loyalty may go the extra mile to keep you happy.
As with credit card processing and other payment forms, you will also find that fees and other charges as well as payout schedules may vary, which is why you may want to do some comparison shopping.
You will also need a way to process payments via the ACH network. These include things like check scanners as well as Virtual Terminals, which securely store account details and also allow you to set up automatic payments for subscriptions and other ongoing charges.
In order to process payments, you will also require some key information from your customers:
You are required to obtain authorization to charge or refund a customer’s bank account. In addition to the information above, such authorization should also detail the amount of the transaction, whether it is a one-time or recurring charge, and if it is recurring, the start date and frequency. Such authorization is also important because it is a key way to protect your business in the event of a dispute.
When ACH payments are rejected, it slows down your ability to get paid, interrupting your cash flow and even running the risk of incurring NOC (Notification of Change) charges. Two of the most common reasons for ACH rejects involve incorrect bank account numbers or incorrect transit/routing numbers. In some cases, a customer may have changed banking arrangements and forgotten to update you; in others, a bank may have changed its routing system. Either of these scenarios puts you at risk for fees.
You can reduce the risk of multiple NOC charges by looking for a solution such as PayJunction’s Virtual Terminal, which is capable of autocorrecting some banking information so that the reject does not reoccur on subsequent transactions. You may also want to institute a fee policy that incentivizes customers to promptly update their account information by penalizing rejects, as you might incur non-sufficient funds fees for paper checks. Just make sure to be transparent so that customers are not surprised should they incur a fee.
One of the many advantages ACH can offer over paper checks is that it can reduce some of the key pain points of managing recurring payments. Collecting payment on an ongoing basis can involve a great deal of manual work – you have to keep track of what is due and when, ensure the check has been received on time, and then go to the bank to make a deposit – every time. But you can eliminate all that hassle by setting up recurring transactions. This means you can set up a transaction once, and be assured it will be processed automatically moving forward on the schedule of your choosing – just don’t forget to ensure that your customer authorizes recurring ACH transactions and not a one-time payment.
Have you set up ACH payments for your business? Was it simpler, harder or just how you expected it to be? Share your experience below.