The Pros and Cons of ACH Transactions

ACH services for small business

An ACH payment is a sort of online payment that has a number of advantages for both businesses and people. Although ACH transfers are often less expensive, more secure, and more convenient than a card, check, or wire transfer, they do have some limits that you should be aware of. 

What is the ACH method of payment?

ACH payment services are essentially a digital check. The ACH (Automated Clearing House) Network is an electronic financial network that handles payments. Rather than using card networks like Visa or Mastercard, this electronic bank-to-bank payment system uses the ACH Network, which has been governed by Nacha since its inception in the 1970s. Direct payments between two US bank accounts are possible with this method.

Individuals, businesses, and governments can all use ACH payments for consumer, business-to-business, and international transactions. ACH payments are used to shift trillions of dollars every year. ACH payments come in a variety of forms, including debit, credit, direct deposit, and more.

Advantages of ACH payments

  1. Convenience

ACH services for small business are a very convenient choice for both businesses and consumers. ACH debit is a technique of automating recurring payments, which is one of the key benefits of ACH for clients. This is easy for customers since they won’t have to fill out paperwork or remember to pay their bills on time each month, and it also has advantages for business owners because they won’t have to perform any manual work to accept payments.

ACH services for small business are a far more user-friendly and efficient method of sending and receiving payments.

  1. Accuracy

ACH payments eliminate the risk of human error by eliminating the majority of the manual effort necessary to process payments and replacing it with an automated method. When processing payments manually, we’re significantly more likely to run into problems owing to wrong information or mishandled data; ACH advantages from being processed electronically, with less potential for error.

  1. Cost

Processing fees for credit and debit card purchases can quickly mount up for businesses. There is a fee associated with ACH payments, although it is typically far cheaper than the fee associated with card payments. An ACH payment costs $0.29 on average, far less than a wire transfer, which costs roughly $25 on average.

ACH payments are especially perfect for organizations that need to execute a large volume of B2B payments, as well as other regular payments like wages, due to their cheaper cost.

  1. Security

Another benefit of ACH payments is that they are safer than wire transfers and credit card transactions. Because ACH payments must transit via clearinghouses that adhere to tight restrictions, this is the case. Money is transferred between accounts immediately, with account numbers kept private. While a wire transfer is irreversible, ACH payments can be refunded.

ACH fraud, on the other hand, is on the rise, as we’ll see further down.

Disadvantages of ACH payments

  1. US Only

The fact that ACH payments can only be made between US accounts gives wire transfers an advantage over ACH. Similar networks, as well as choices like SWIFT payments, allow you to make international payments at a lesser cost than wire transfers, although ACH payments cannot be done to foreign accounts.

  1. Processing times

Clearinghouses process ACH payments in batches at regular periods during the business day, so they don’t happen quickly. Wire transfers, on the other hand, are completed in real-time, allowing money to move quickly. It may take up to three business days for ACH transactions to be processed. Some payments can be processed the same day, but the majority will take longer.

Any other ACH payment, such as an ACH credit transaction, may take up to three days to process.

  1. Amount limits

Some banks may place restrictions on the amount of money that can be transmitted with an ACH payment. This could be a daily, weekly, monthly, or per-transaction limit, and the limits will vary depending on the ACH transaction type. If you’re making a significant payment, check with your bank beforehand to see if it’s possible to do so using the ACH network.

Similarly, making frequent ACH payments from a savings account to another bank account may result in a penalty.

Payroll fraud

Businesses that receive payments by ACH should be aware of the risk of fraud, particularly payroll fraud. Because the payment process is automated, it is easy for employees to deceive the system by submitting false information, such as excessive hours worked, or by creating fraudulent accounts for nonexistent employees.

Fraudulent businesses, on the other hand, may pose as a charity or a customer to trick people into making payments.

Businesses should have bank account verification mechanisms in place, and people should be cautious about who they send money to.

We can help

We can assist you with automating payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices.

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