ACH payments are easy to set up and facilitate. They offer reduced risk for both parties (no more lost or stolen paper checks) and minimal to no transaction fees compared to wire transfers or credit card transactions. ACH payroll allows you to receive split direct deposits from your employer on payday or recurring bills that get “pushed” into your account monthly. You can also make ACH payments yourself via your bank or payment processor.
How ACH Transfers Work
An ACH transfer is an electronic movement of funds between accounts at different banks or credit unions. It’s an alternative to paper checks, cash or using the credit card network and can be made from checking or savings accounts. It’s the backbone of direct deposit, the government’s disbursement of Social Security payments, tax refunds, and many e-commerce payment services.
Generally, ACH transfers happen through the National Automated Clearing House, or ACH, network. Banks send instructions through the ACH network to debit or credit an account based on information contained in the transaction, such as an account number, routing/ABA number (also found on the bottom of a check), date and amount. Those instructions are then bundled into digital batches passed through the ACH network regularly each business day.
The ACH transfer process can take between two and five days. That’s why adhering to a certain cut-off time when sending money through the system is important. Weekends and bank holidays also don’t count as business days for a processing deadline. Taking control of ACH payments can help improve your business’s cash flow, reduce customer churn and free up time spent chasing late payments. It helps your company stay focused on growth and other core objectives. ACH payments are also much cheaper than a wire transfer for businesses.
ACH Credit Card Payments
ACH is one of the most popular electronic transactions for consumers and businesses. It’s used by individuals for direct deposits and recurring bill payments, by employers for B2B and payroll management, and by government agencies for pension and unemployment benefits. The Automated Clearing House network processes over 25 billion ACH transactions yearly. Whether you need to pay employees or invoice customers, an ACH transaction can help you get the money you’re owed quickly and reliably. So what is an ACH payroll? It’s a safer option than using cash or a check, and it helps to protect your business from customer fraud by sending payment data through a secure, double-verified channel. ACH transactions are usually free, and you can expect to pay less than a 1% fee or nothing with most third-party payment platforms. Unlike a wire transfer, which can take up to five business days to process and settle, an ACH payment can be made in two or three days. Plus, it’s generally more cost-effective for businesses, especially for recurring payments that involve small amounts. As a bonus, ACH transfers don’t carry the same risks as credit card payments or checks. It means less chance of payment errors, bounced checks, or stolen private information.
ACH Direct Deposit
ACH direct deposits are among the most common forms of ACH payments for consumers and businesses. They’re typically used to deliver salary payments but can also be made for other B2B transactions and a consumer credit card or bank account payment processing. Using the ACH network to send money to an employee’s bank account is quick, cost-effective and more secure than sending a check or paying by card. The ACH system is the most popular type of electronic transaction in the US, processing more than 55 trillion dollars in transactions last year alone.
Most ACH direct deposit payments are free, but fees are associated with expedited bill payments and person-to-person transfers. Most banks charge nothing to transfer funds from one account to another, but a few cents may be charged for third-party applications or to move a large amount of cash into a high-yield savings account. When it comes to ACH payments, accuracy is key. The ACH process is automated and uses rules and regulations like encryption to enhance security and reduce the likelihood of human error. For this reason, ACH transfers are the most accurate way for businesses to pay employees and other vendors. In addition, fewer ACH payments fail compared to card payments and checks.
ACH Recurring Payments
Using ACH Payroll isn’t just for big businesses – small business owners can also use it. Whether you’re a freelancer, consultant, coach, massage therapist or construction company, if you invoice for your work and receive payments through bank transfer instead of credit cards, ACH can be a smart solution for your company. Similarly, if you have recurring customers – such as an insurance provider or mortgage lender – ACH can be a great way to process payments automatically each billing cycle.
Generally speaking, ACH Payroll transactions fall into direct deposits and direct payments. Direct deposits are when money is deposited into a customer’s bank account directly from a business or the government, for example, paychecks, Social Security payments and tax refunds. Direct payments are ACH transactions you send out of your bank account, for example, bill payments and online purchases. When using ACH for payments, it’s important to adhere to the strict rules governing the network, such as cut-off times and fees. Access to the ACH Network can be cost-effective when you work with a business payment processor that has access to it. But it can also be expensive when you try to obtain direct access.