The Importance of ACH Processing for Small Businesses

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Over the last couple of decades, the ACH network has grown into one of the safest, largest, and most efficient systems in banking.

Just how large is it? 

The network moved $61.9 trillion in 2020. In 2021, ACH processed 29.1 billion payments totaling over $72 trillion. 

What Is ACH?

If you have ever had your paycheck deposited directly into your account or signed up for an online bill, you have benefited from the ACH network. 

The ACH network is a payment system administered and organized by the National Automated Clearing House Association (NACHA). Technically, the ACH network is a computer system that communicates with each other to receive and make payments. As such, every transaction has two computers:

  • One on the sending end to request a payment
  • One at the receiving end to accept the request

This system is fundamental to businesses in the US because it allows companies to pay wages, mortgages, bills, and make direct deposits. 

Key Benefits of ACH Processing for Small Businesses

Cost savings compared to other payment methods

ACH for small businesses is more affordable compared to most other forms of payment. For example, credit card fees can be steep at 2-4% per transaction. This is not inclusive of operational and set-up fees. 

Similarly, businesses can spend upwards of $20 per paper transaction when you account for preparing, printing, and tracking payments. ACH payments cost significantly less, and many companies cap the amount you pay. These amounts add up with bulk payments. 

Enhanced payment security and reduced fraud risk

It’s no secret that identity theft is a huge concern for your business and its clients. So much so that some clients hesitate to provide a bank account number. Data protection is always a priority, and ACH payments are designed to do just that. 

ACH payments are encrypted, and stored data is not exposed to vendors or accounts. This makes the transactions safe, with minimal risk of payments being lost, stolen, or forged. 

Faster payment processing times

As an electronic payment, ACH payments for small businesses are easier and faster than traditional payments like checks. Disputes are also immediate, meaning faster resolution, so your payments are timely. Additionally, with an ACH payment, you get immediate failure notifications, eliminating the uncertainty of when to expect payments. 

There are three reasons why an ACH payment can be disputed. These include:

  • The transaction is not for the authorized amount
  • The payment was processed earlier than the authorized date
  • A payment is unauthorized

On the other hand, there are many reasons why a credit card payment can be disputed. Additionally, banks tend to hold on to credit card payments for days due to the high rates of non-payment. In contrast, ACH payments reflect much sooner, which is fundamental to business continuity.

Improved cash flow management

82% of business failures can be linked to poor cash management. ACH lets you schedule payment dates, allowing you access to cash until the payments fall due. You can also track payments and always know when to expect funds because they come directly from the customer’s account. This means you always have a clear picture of what is accessible to you so you can channel available funds to their best use. 

Supports sustainability

A check requires paper, stamps, envelopes, and even paper copies of the check. There is also the carbon footprint required to deliver the check. These do nothing for sustainability. 

ACH payments are paperless, allowing your business to contribute to green global efforts. They also allow you to cover your bases. For example, in the epidemic, the world just came through. This hands-free option would ensure you can still make payments on time. 

Other benefits of ACH payments include:

  • Increased revenue growth opportunities
  • Improved cash flow forecasting
  • It streamlines the disbursement process
  • Eliminate mail float
  • Streamline reconciliation
  • Reduced error and fraud

ACH Processing vs. Traditional Payment Methods for Small Businesses

ACH vs. Checks

ACH payments require the same information that you would enter on a check. In fact, we can call checks the analog version of ACH checks. However, ACH payments minimize handling, making them faster and safer. Their processing fees tend to be significantly lower, they minimize check fraud, and you can automate payments. 

ACH vs. Credit Cards

ACH payments and credit card payments go toe-to-toe on benefits. There is one glaring difference, however: cost. Credit cards will charge you 2.5% of the value of a transaction on average. This is in addition to processing fees. 

ACH vs. Wire transfer

Wire transfers are a means of transferring money electronically from one bank or financial institution to another. Nonetheless, wire transfers tend to be typically faster than ACH payments. It’s, however, essential to note that the slower ACH process allows for built-in protections against fraud. On cost, ACH payments come out on top as the costs are negligible compared to wire transfers. 

Choosing the Right Small Business ACH Processing Provider

While ACH undoubtedly brings considerable gains to your business, picking the right ACH processing partner is vital. 

Some critical things to look for are affordability, features, and integrations. Features on their own mean nothing. Because they tend to cost more, consider how they support your business, and go for the most valuable ones. 

The other thing is contract length. Some processors allow month-to-month billing, while other contracts go for up to three years. 

Steps to Set Up and Start Accepting ACH Payments for your small business

Setting up ACH processing to receive payments is easier than you might think. 

Choose a payment processor after comparing three to four payment processing operators. 

Once you identify an ideal one, open an account by filling in all the required forms. 

Third-party processors will give you an account and routing number different from your regular bank account. 

Once everything is set up, you can notify your customers that you accept ACH payments. To receive payments, you can enter customer information automatically to initiate the transaction. You can also allow your customers to enter their details themselves. 

Tracking ACH Transactions

ACH payments can be tracked through a 15-digit number called a trace number. The sending institution issues this number, and it can be availed to your receiving institution to track an impending transfer. 

Talk to Us Today

FLEX Payment Solutions understands how central cash is to a business. Whether making payments to ensure continuity or receiving payments, you need a trusted, flexible processor that ensures quick, efficient payment processing.

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