Check Processing

Why Your Business Needs ACH Payment Processing Now More Than Ever

Read Time: 4 min

Many businesses accept credit and debit cards in addition to checks and cash as payment for goods or services. While this is convenient for customers, the cost of processing credit card transactions can add up over time for the business. Additionally, checks present a whole other set of issues and can be a headache to deal with. Thankfully, there is an alternative payment method that many businesses are not aware of, but can benefit greatly from. Automated Clearing House or ACH payments, allow the merchant to directly debit the customer’s bank account at a cost that’s often substantially lower per transaction than processing credit and debit cards. ACH payments can be utilized for single or recurring payments. This makes ACH payment processing an ideal method of payment. This article will detail the top three reasons why ACH payments can benefit your business.

How ACH Payment Processing Works

ACH payment processing

ACH payments are growing in popularity each year, and the ACH system is already a serious player in the payments space. ACH payments have risen in popularity by 6% each year between 2015 and 2018 according to a Federal Reserve Payments Study. Additionally, over $51 trillion transactions occurred via the ACH system in 2018 according to NACHA (National Automated Clearinghouse Association). NACHA sets the rules that all banks and financial institutions in the United States have to abide by when using ACH. Many people are currently using ACH in their daily lives, but are not aware of the system. Common uses for ACH payment processing include paying bills on a monthly basis automatically and direct deposit from employers.

ACH payments create a direct electronic payment connection between the consumer’s bank account and the merchant provider’s. The consumer enters his or her banking details, including the routing number, in a secure online system. Once this is set up, the payments happen automatically at set intervals.

ACH often uses micro-payments to ensure that the client signed up for the ACH services. This prevents fraudsters from signing up for services using your banking information. When the consumer signs up, two micro-transactions occur in their bank account. The client then indicates to the merchant the exact amount of these two small transactions (often just a few cents each, but the exact amount varies for security purposes). Once this is complete, the client can begin sending and receiving funds via this specific merchant.

Reduction in Chargebacks

Chargebacks occur for multiple reasons that include the following:

  • Fraud
  • Cardholder disputes
  • Item or services are not as described

In most of the cases listed above, the merchant is responsible for the chargeback, even if the merchant feels they are correct in the situation. This reality can cost the business a substantial amount of money over time. Depending on the number of chargebacks, a merchant can be considered ‘high risk’ resulting in an increase in rollover times and processing fees.

According to NACHA, there are three instances that an ACH payment can be reversed (not including fraudulent charges):

  • Wrong account number – in the unlikely event that the merchant bank or customer bank account number is incorrect, the transaction can be refunded.
  • Double billing – if the same transaction debits the account two or more times, the redundant transactions will be refunded.
  • Incorrect transaction amount – if the charge amount is incorrectly input, the transaction can be refunded.

Chargebacks can ruin a business if they occur too often. Therefore, the reduction of chargebacks is a solid and convincing reason for businesses to add ACH as a payment type.

Enhanced Security with ACH

Woman paying an invoice on her cellphone with an electronic check and ACH payment processing

ACH payment processing helps businesses securely accept payments. This is especially true when comparing ACH payments to checks. According to J.P. Morgan, 70% of businesses experienced check fraud in 2019. Despite this, checks are still commonly used for purchasing goods and services. They contain a unique set of risks compared to other payment types for the customer:

  • Checks can be lost, creating a security hazard until the check is canceled. There are many people who have lost checks without realizing it, only to later see that money is missing from their bank account.
  • Forged checks create transactions that are debited from the customer’s account without their permission. Solving check fraud often requires filling out a police report and lengthy discussions with the bank.
  • When paying for services with checks, there’s increased room for errors when writing out the check, putting it in an envelope, and mailing it.

When using the ACH payment type, money is transferred directly from the client’s bank account to the merchant account. This greatly reduces fraud and the financial and emotional stress associated with it.

How to Set Up ACH Payment Processing for Your Business

In order to accept ACH payments as a business, a merchant services provider needs to create a merchant account. It’s not possible for a business to accept ACH payments directly without a processor as the middleman. That’s where we come in.

PaymentCloud is a top-rated and trusted merchant account provider that is equipped to offer quick and secure payment processing. Each business relationship is carefully evaluated to make sure our clients receive the best outcome for ACH payment processing as well as other solutions. ACH payments can help your business reduce chargebacks, decrease fraud, and minimize processing fees.