Learning the Ins and Outs of ACH Payment Processing

Feb 23, 2018

If your payroll gets directly deposited into your bank account, then you have interacted with the Automated Clearing House (ACH). Most people have used or been involved with ACH without realizing it. To understand ACH payment processing and how it works, you will need to understand what it is, which parties are involved, and how it could benefit your business.

Understanding an ACH Payment and the Parties Involved

ACH is the network that connects all financial institutions and banks within the United States. Whenever you receive a fund transfer, such as a payroll deposit, that gets deposited directly into your bank account, it is getting there via the ACH.

There are several parties involved in the management and operations of the ACH. The ACH’s rules and regulations are managed by the non-partisan governmental organization, NACHA. Meanwhile, the Originating Depository Financial Institution (ODFI), which is the banking agency from which the transaction originates and the Receiving Depository Financing Institution (RDFI), which is the institution that receives the funds routed from the ACH, are involved in the process.

How an ACH Payment is Processed

As we mentioned before, anyone who has had a paycheck directly deposited into a bank account has already experienced an ACH payment. Here, you will fully understand what happens when you submit a payment via the ACH and when you receive one.

ACH payment are used most often in situations where a person is making a larger payment less often, such as a payment to a property manager, mortgage company, or a utility. For example, if you make a payment to your property management firm via ACH, the transaction begins with the firm’s bank sending an ACH debit entry to the ODFI. The ODFI then connects with the RDFI and they interface with the customer account to ensure that there are sufficient funds available in the bank account from which the money is suppose to be withdrawn. If there is enough money in the account, the transaction is processed and the funds are sent to the property management’s bank account. When you are the recipient of a deposit, it works almost the same way. In this situation, the payer initiates a funds transfer via an ODFI.

In either scenario, if there is not enough money in the account, the ODFI receives a return code. Any bank transfer, including an ACH payment, can fail even after the transfer has been processed. This triggers a return code. Common reasons for a return include: insufficient funds, payment disputes, unfounded bank account, and closed bank accounts.

Should Your Business Accept ACH Payments

ACH transactions can be processed via a check scanner, website payments, and a virtual terminal. ACH payment processing requires a merchant to partner with a merchant account provider that offers this type of processing.

Merchants can save money with online ACH payments. These payments are much cheaper than credit or debit card transactions. The average cost of an ACH transaction is $0.11, according to NACHA. Additionally, the easier to process than traditional paper checks. Also, ACH transactions are more convenient. Since ACH payments are a type of electronic fund transfer, you don’t need to forward checks to a bank and wait to see which ones cleared.

However, it is important to keep in mind that transactions that are completed via the ACH are not guaranteed funds. Remember, an ACH payment in only a request that customer’s clients release the money into the other’s account. Since batch processing is used to handle ACH payments, it can take several days before a merchant learns a transactions is being returned.

The above scenario is why many merchant opt to take credit card payments or ACH transactions. Since credit cards use a network that verifies a customer’s credit limit, the payment is process once the network approves it. When it is approved, the payment processor must deposit the fund into your account.

Though all types of businesses use ACH transactions, most find it most useful for businesses that collect recurring payments.

One Last Word

There are definite benefits to ACH payment processing, including convenience and cost savings. In fact, ACH payments are considered one of the most secure, cost-efficient ways to pay an entity or to make a payment for good and services because funds are directly transferred to a bank account.

When it’s time to partner with a merchant account service provider, do your research. It’s easy to get overwhelmed with the many choices available.

If you are interested in learning more about ACH payment processing, eMerchantBroker.com (EMB). We are a trusted, reliable payment solutions provider that specializes in working with high-risk businesses.

Let us help you get a high risk merchant account today!

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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