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Your Complete Guide of ACH - Part 2

Mohammad Khan Yusufzai is Masters in Management, specializing in Economics, Finance and Marketing, with corporate & lectureship exp.

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In the last article we understood what is ACH, how does ACH system work, how long does it take, and what are the different types of ACH transactions. In this article let's understand why you should consider ACH payment options and how does A.C.H performs as compared to other payment systems.

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Benefits of A.C.H. System

Firstly let's see how A.C.H. Payment benefits both your business and its customers.

ACH Offers Greater Convenience

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A.C.H. is convenient both to your business and its customers. Customers don't have to carry cash or their checkbooks everywhere to pay.

Checks also have a process of their own. Filling out the check, put it in the envelope, post it, and if the transaction somehow failed, your customer has to start over again.

Even for your business, you have to make the trip to the bank, wait for days to get checks cleared, and maintain a proper record of a check payment is very tedious.

A.C.H. transfers funds electronically. So You don't have to go through all the hassle of dealing with a physical check.
A.C.H. also offers to automatically set up recurring payments, which is again highly convenient.

More Secure Transactions with ACH

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A.C.H. clears funds in batches through the Clearing House and Federal Reserve. The system is automated and highly secured. So the chances of any manipulation are not possible between the clearing process. And Since funds clear in batches, it's possible to cancel or reverse the transaction.

As per the AFP Payments Fraud And Control Survey 2021, Paper Checks are the most vulnerable payment method subject to fraud. And rightly so:

A check can get lost in the mailing process. Multiple individuals handle checks throughout the mailing and checking process (with the account number and the routing number readily available in a check).

ACH Offers More Speed.

Suppose you have to pay immediately to a vendor or you might lose a very good deal. It is impractical to carry loads of cash everywhere. And there's a limit over how much you can pay through debit and credit cards. A Check will result in at least two working days for clearing. That's why A.C.H. is the most preferred method of payment involving huge funds. It doesn't go through the process of mailing and transportation. A.C.H. gets cleared in batches electronically. So the processing time is very fast. And with the same-day A.C.H. facility, there's also an option to transfer funds within the same day.

Reduces Errors and Omissions

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With the physical handling of payments, such as checks or cash, there are always risks of human mistakes. Your employee might miscount the number of dollars. They may forget to post the check or misplace it. Another common mistake is forgetting to post about the fund's transfer in the books.
A.C.H. eliminates the need for counting and unnecessary trips to the bank. And it can get automatically recorded under most of the bookkeeping software. So your accounts remain up-to-date even if your employee forgot to record the transaction.

Least Expensive Payment Method

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You already know that debit and credit card has the most processing fees, as fees are calculated as the percent of the transaction. Checks cost less but their transportation and handling make them more expensive.
ACH debit payments are typically free such as Payroll Direct Transfer and Bill payments. However, Bank might charge you extra for the early settlement of a bill.
ACH credit transfers, incur a nominal fee of around $3-$5 for sending them to an account of a different bank. There are no fees to receive A.C.H. funds. Some platforms such as OnlineCheckWriter offer ACH transactions for free.

ACH Offers Greater Customer Satisfaction

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A.C.H. is relatively easy than traditional paper checks. Some people don't feel confident about sharing their credit cards or other personal details online. And writing a series of numbers over and over again can be unnecessarily complicated sometimes.
Your customers can also save a recurring payment. This means they can automatically pay their bills through A.C.H. They won't have to worry about meeting deadlines and remembering all the due payments dates.
Thus A.C.H. provides a more secure and easy payment option to your customers.



How ACH fares against other payment methods

Electronic Fund Transfers (EFT)

EFT or Electronic Fund Transfers are electronic transfers of funds between bank accounts. EFTs can include ACH and Wire Transfer services and other forms of digital payment. EFT is an umbrella term that covers ACH, eCheck, RTP, and some Point Of Sale Transactions. Thus, ACH is a type of EFT transfer.

Real-Time Payments

RTP or real-time payments are the payments that can settle instantly. The Clearing House developed the RTP network. This network is online 24X7X365 to settle transfers.

While the facility of same-day ACH provides faster settlement of transactions, it is still not instant. Furthermore, ACH only operates on business days. While the RTP network operates even on weekends and holidays.

Third-party payment processors (TPPPs)

They are a subtype of ACH processors. They provide payment processing services to merchant or business clients. TPPPs are processed through RTP and ACH. They offer both debit and credit processing facilities. They take advantage of economies of scale by grouping a large number of transactions.

Digital Wallet

A digital wallet is a software or online service that enables individuals or businesses to make or receive payments electronically via the internet. It allows your customers to complete purchases quickly by allowing them to pay at the 'point of sale' i.e directly at your store or website. Simply put, digital wallets aim to replace the existing physical system of cash transactions with the digital, online version of wallets.

Digital Wallet offers a limited number of transactions. Its maximum value is also smaller than that of ACH.

Conclusion

After going through all the benefits, it is safe to say ACH adds great value to your business. It is the norm of business nowadays. You should consider the ACH payment system as it will greatly improve customer satisfaction and ease your business working.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2021 Mohammad Khan Yusufzai

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