What is ACH Processing?
What is ACH Processing?
There are two primary ways people can pay for their purchases online and offline: using cash or credit. Within the cash family, people can use paper money, use debit cards, or write a check. The result is the same. The cash comes out of their immediate reserves to pay for their items rather than having that purchases added to a running tab (credit card). Most businesses take paper money and debit cards, but don't accept checks because they feel the risk a check presents is too high. However, ACH processing is a good way to make it more convenient for your customers to pay you and reduce your risk of getting a bad check.
ACH is the acronym for Automated Clearing House. Rather than provide a credit or debit card number, the customers gives the bank routing number and bank account number. This information is sent to a third party, the ACH processing company, who verifies the account is legitimate and then transfers the money from the bank account into your business account. This system of money transfer was created by the Federal Reserve System as a way of reducing the amount of paperwork and lag time involved in processing paper checks.
It can take up to 10 days to capture money with a paper check. Some banks are faster than others, but even then you are still looking at approximately 5 days for a paper to check to "clear". With ACH processing, electronic checks will clear within 24 to 48 hours. This significantly reduces the chance that the check will be rejected for insufficient funds and helps you maintain your cash flow. ACH can be used to pay bills also. If you have employees, for example, you can pay them by electronic funds transfer and reduce the cost and paperwork involved with paper checks.
To get started with ACH Processing, you need a merchant account. To setup a merchant account, you need the company name, a tax id number, and the appropriate personal and company identification. If you own more than one business, then you will need multiple accounts - one for each business. The next step is to find a payment processor who is able to handle ACH payments. It is a good idea to work with a company who can process credit and debit cards as well to streamline your business processes. Look around at the option available, and choose the best one for your business.
