ACH Payment Processing Explained

ACH Payment Processing Explained

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by Micah James — 1 year ago in Finance 2 min. read
2022

Since its inception in the mid-1970s, the Automated Clearing House (ACH) payment system has processed billions of transactions in the U.S., resulting in trillions of dollars in value every year. In just 2022 alone, an estimated 30 billion payments–which totaled about $76.6 trillion–went through the ACH Network. But what exactly is ACH payment processing, and how can it revolutionize financial transactions for your business?

What is ACH?

The Automated Clearing House, also known as ACH, is an electronic financial network in the U.S. that processes all kinds of financial transactions, including direct deposit of paychecks, business-to-business (B2B) payments, monthly debits, and other recurring payments. Because of its secure and efficient nature, ACH payments have become the preferred method of payment for many individuals, businesses, and organizations, leading to a decrease in the use of checks and other paper transactions over time.

The National Automated Clearing House Association (NACHA), which was founded in 1974 to promote the development of a stronger payment system, manages all aspects of the ACH Network. Because of this, all payments go through the standardized ACH Network instead of major card networks like Visa, Mastercard, or American Express.

Also read: Best ecommerce platform in 2021

How an ACH Transaction Works

An ACH payment begins when the merchant provides a customer, or payer, with the amount due. The payer will then initiate the payment through the ACH Network by providing the merchant with authorization and necessary payment information. Once the network verifies the details of the transaction and ensures its compliance with regulations, the funds are transferred from the payer’s bank account to the merchant’s bank account.

How Long does It Take to Process an ACH Payment?

Imagine you have a pile of dirty clothes that need to be washed. Instead of washing each individual garment separately, it would be far more efficient to gather them all and put them into the washing machine as a batch. This way, all of your clothes can be cleaned at once.

That’s sort of how ACH payments work. Unlike wire transfers and other real-time payment systems that process each transaction individually, financial institutions that process ACH payments accumulate multiple transactions throughout the day and submit them in batches for processing at specific times. Thus, the transfer is facilitated and finalized over one to several business days.



Benefits of ACH Payments for Businesses

Advanced ACH payment processing has revolutionized the way organizations handle financial transactions, and businesses now have access to a seamless and streamlined ACH transaction system. But are ACH payments right for your business? Well, let’s consider the benefits:

  • Low costs – Since ACH payments don’t require paper-based checks, expensive card networks, or postage, it’s generally considered to be a cheaper method of moving funds around.
  • Increased security – ACH payments are secure because they go through a mandatory verification process that reduces financial risks. In general, electronic payments are also unlikely to run into issues like forgery and tampering by unauthorized parties, which are quite common with checks and money orders.
  • Automation of recurring payments – Automating ACH payments means you save time and effort for your business since it eliminates the need for manual intervention in initiating each payment individually. Think back to our analogy of doing the laundry: it would simply be incredibly taxing to wash each garment separately.
  • Decreased risk of error – With cash, checks, and money orders, it’s fairly easy to miss deadlines, and often, people end up having to make late payments. Automating the ACH payments process reduces the likelihood of such errors, and ensures that payments are processed automatically according to the predetermined schedule.
Micah James

Micah is SEO Manager of The Next Tech. When he is in office then love to his role and apart from this he loves to coffee when he gets free. He loves to play soccer and reading comics.

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