There used to be a time when processing a customer’s payments electronically meant accepting credit cards. Along with that came a “slew” of fees merchants had to pay to banks, credit card associations and acquirers for that privilege. Now, for many merchants, ACH processing can help them electronically process payments from their customers while bypassing the credit card companies altogether. Here’s how…
ACH Processing
ACH is an acronym for Automated Clearing House, a network maintained by the Federal Reserve for the electronic transfer of money. As such, the ACH is in a sense a direct competitor of VISA. No, they don’t extend credit, as Visa’s member banks (card issuing banks) do, but they do enable merchants to get paid electronically by using a means other than the Visa network (Visanet).
ACH has also been called “automatic check handling”, because that’s essentially what it is. It’s the electronic transfer of money from one checking account to another.
The majority of readers of this article already use (or have used) the ACH system in one way or another. If your insurance company debits your checking account monthly for premium payments, that’s an ACH transaction. At some point you agreed in writing to allow your insurance company to debit your account.
How Businesses Benefit
- As a business owner your number one benefit is that using ACH transactions enables you to have your customer pay you electronically, without having to pay a discount fee to a credit card network. Instead, you are charged a flat transaction fee. As you can see, the larger the ticket, the higher the savings. This can become very significant
- Your customer can write you a check at the point of sale, which you can convert to an ACH debit during back office processing, eliminating a trip to the bank.
- You can use the ACH system for account receivables
- ACH enables you to accept “check payments” over the phone
- You can use it for internet transactions
- Depending on the type of transaction and time of day the money can be posted to your account within 1 business day
- Can be used for direct payroll reducing costs by eliminating paper checks
- Good for any type of recurring monthly payments
Summary: As you can see, there are many ways a merchant can use and benefit from using the ACH networks as an alternative to credit or debit card transactions.