When you started your business, you may have only accepted cash and checks as payment methods. After that, you’ve probably added credit card processing. But as your business continues to grow, you shouldn’t just stop there.

There are other payment options that can allow you to do business with a broader audience. One of the most popular payments right now is the automated clearing house (ACH).

What Is An ACH Payment?

An ACH payment is a US financial network used for money transfers and electronic payments. It’s a way to transfer money from one bank account to another without using credit card networks, paper checks, cash, or wire transfers.
They’re more common for recurring subscriptions, but can also be used for one-time payments. Thus, they’re suitable if you’re offering monthly subscription plans.

How Does It Work?

Aside from the ACH network that connects all the banks in the US, there are other players involved in an ACH payment:

• An originating depository financial institution creates an ACH request.
• The receiving depository financial institution receives the ACH request.
• The National Automated Clearing House Association oversees and regulates the ACH network.

When a customer signs up for an ACH payment, they provide you with the checking account information and sign a recurring payment authorization. When they hit their billing cycle, your business’s bank sends a request to the customer’s bank to transfer the money owed.

The two banks communicate to ensure that there are enough funds in the customer’s bank account to process the transaction. If there are enough funds, the transaction is processed and the money is transferred to your business’s bank account.

4 Ways Small Businesses Can Use ACH Payments

There are numerous ways you can use ACH in your small business process, and it’ll become a useful addition to your payment method options.

• Receiving Customer Payments

Of course, this is the main use of ACH payments for your small business. In order to receive the payment, your customers need to authorize the transaction to transfer funds from their bank to yours.

• Paying Employees

To ensure timely payment of employee salary, most businesses also use ACH payment to give employee salary. Your small business will need to set up a payment instruction using your employee’s bank account and routing number, along with the necessary authorization from your own bank.

• Paying Suppliers

Like how you can accept payments from your customers, you can also use ACH to make payments to your suppliers who only accept electronic payments. It’s a convenient and safe payment method that reduces the risk of fraud and the hassle of using paper checks.

• Paying The Government

Another use of ACH payment is to pay your tax obligations to the government. ACH payments make it so much easier to pay your taxes to the Internal Revenue Service (IRS).
You can simply withdraw funds using the corresponding tax forms and payments. Tax payment will be shown on your bank account statement as proof of payment.

• How Long Does It Take To Transfer Funds?

In general, ACH payments can take three to five business days to be processed, which are the days on which the banks are open. The ACH network processes payments in batches.

Each bank has its own policy for when they make funds available to customers, so make sure to check yours. Also, keep in mind that banking holidays can also delay ACH payments.

Since 2016, same-day ACH capabilities have been available to customers. And in 2021, a third same-day ACH processing window was added that increases the opportunities for businesses to send same-day ACH payments per day. In general, you’ll have a limit of USD$100,000 per transaction for same-day ACH payments.

ACH Payments Versus EFT Payments And Wire Transfers

Electronic funds transfer (EFT) payments refer to a wide range of financial processes to transfer money directly from one bank to another, including ATMs, e-Wallets like Google Pay, wire transfers, debit cards, ACH, and electronic checks.

This means that both ACH and wire transfers are actually a subset of EFT payments. However, there are certain differences between wire transfers and ACH. ACH payments can be used to both receive and send money. Meanwhile, wire transfers can only send funds.

In addition, ACH payments don’t need any human input. However, with wire transfers, bank employees need to manually complete the transaction. Also, ACH payments are designed for transactions lower than USD$5,000, whereas wire transfers are used for almost any amount.

Take Away

And that’s how ACH payments work. If you think your business will benefit from an ACH payment, then there’s no time like now to add this method to cater to more potential customers and enjoy its convenience.