Electronic transactions known as Automated Clearing House (ACH) debits “lift” money from the payer’s account and deposit it into the payee’s account. ACH debits, as opposed to ACH credits, are started by the payee rather than the payer.
Both sides must agree to an ACH debit payment before it can proceed, which means the payer (often a customer) must allow the payee (typically a business) permission to withdraw money from their account. These basic payment methods provide a safe and economical option for businesses to receive payments.
Businesses and governmental organizations, for instance, frequently accept recurring monthly payments such as membership fees or loan repayments through ACH debits. ACH debits can lower the risk of late or unsuccessful payments because they are automated. This was only a brief about what is ACH, the actual working of an automated clearing house is a rotation that starts from direct deposit and ends with receiving funds.
Let us now understand why ACH payments are beneficial to businesses.
Benefits of ACH Payments to Subscription Businesses
1. Reduced transaction fees
Compared to cheques or credit cards, ACH processing fees are among its major draws. According to a Wall Street Journal (WSJ) study, an individual typically spends $4 to $20 while writing a check (including printing, payment initiation, authorization, signing, mailing cost, and time spent). Nevertheless, with an ACH, money is transmitted between the two bank accounts via a clearing house, which keeps the transaction cost to a minimum.
Let’s examine the fees associated with utilizing a check, credit card, or ACH (via Forte or Authorize.Net) to complete a $100 transaction:
Check: $12 (Average of $4 and $20 based on the WSJ article)
Credit Card*: Approximately $2.50
ACH: Forte**: $0.25
Convincing enough to switch, right?
2. Speed processing
An ACH’s settlement period offers a convenient alternative to both cheques and credit cards. A check settlement may require five to six business days, an ACH settlement three to four business days, and a credit card settlement two to three business days.
Furthermore, an operating regulation that will enable same-day ACH transfers has been adopted by the National Automated Clearing House Association (NACHA), the organization that oversees electronic payments.
Some of the most prevalent worries about checks are allayed by ACH. ACH transfers are direct and do not require middlemen, in contrast to checks, which are susceptible to both misplacement and signature fraud. Some of ACH’s payment processors do two-way micro-validation to verify the veracity of the two parties involved because your customer might be reluctant to disclose his bank account information.
The processors deposit two little amounts, ranging from $0.01 to $0.25, into the accounts of the client and the company owner. When sending money, the consumer must confirm the precise amount. This verification guarantees the business owner two things: the accuracy of the account information he provided and the absence of any transaction blocks on his account.
Stop writing checks now! Money transfers can now be done easily thanks to ACH. The best of both worlds is provided by ACH: as a payer, you can do away with large checkbooks, and as a business owner, you can offer your customers the choice of using ACH to make a one-time payment or to set up recurring payments. Also, since the transaction happens between two bank accounts, using ACH spares you the headache of contacting clients when a transaction fails because a card has expired.
5. Excellent for recurring billing
ACH payments are a fantastic choice for you and your customers if your business uses a subscription-based business model.
Businesses that operate on subscriptions or that bill clients on a regular basis confront a variety of difficulties. Due to the volume of recurrent transactions they handle each month, their payment processing expenses have the potential to rise dangerously high. Also, their clients can neglect to pay their debts, which would lead to unpaid invoices and cash flow problems.
Both of these issues can be solved with ACH payments. Being a small business, you also need to create estimates. Learn how to create estimates for free for your small business now.
ACH payments are one of the most cost-effective payment options and can help companies save on their processing fees. These individual savings, taken together, may significantly impact the merchant’s bottom line. Customers can avoid having to remember to pay their bills with regular billing.
6. Reduce human error and saves time
ACH payments can save you time and money because you won’t need to deal with a physical paper check. This frees up their time to work on other, more fruitful projects for your company. Moreover, processing payments with ACH checks will take less time.
Electronic ACH payments also reduce human error and the time required to correct it. Businesses lose time and money as a result of human error. Human mistake is the primary cause of 23% of data loss, according to IBM Security’s 2020 Cost of a Data Breach Study. The cost of each data breach resulting from human error was estimated by the same analysis to be $3.3 million on average for enterprises. You can completely avoid the possibility of human error while using ACH checks.
How ACH Payments Benefits Consumers
Let’s check how it is useful for consumers.
Simple to use
By using ACH, a customer is relieved of the need to place orders, write checks, send them, cross their fingers, and wait for arrival. Also, by paying the money straight out of their bank account, individuals avoid the burden of amassing credit card debt.
They could also be automatic
For recurrent purchases, paying by ACH allows consumers to have the amounts deducted from their bank account automatically each time the payment is due. This eliminates any inconvenience associated with keeping an eye out for bills to come and paying them according to the instructions provided therein.
Using an Automated Clearing House (ACH) for payment processing can be a game-changer for small businesses. With ACH, small businesses can streamline their payment processes, reduce payment processing costs, and improve their cash flow management. Additionally, ACH can provide a more secure payment method and help prevent fraud.
By adopting ACH payments, small businesses can stay competitive in today’s digital landscape and offer a more convenient payment experience to their customers. So, if you’re a small business owner looking for a better payment processing solution, ACH is definitely worth considering.