What is an ACH Payment?

What should businesses do when customers wish to pay by check online? Should they say no checks allowed, or is there a way to make online check payment secure? For businesses that need to improve their bottom line, there’s no such thing as no checks allowed, but there is a way to accept an online check securely. And it lies in ACH (automated clearing house) payments, which debit a customer’s checking account. Payment by ACH is popular with a number of government organizations and business merchants, who favor it for the following reasons:

  • Funds are transferred within 24 hours, a dramatic improvement over the transfer time for paper checks.
  • The cost of an ACH transaction is usually lower than the cost of a credit or Paypal transaction.
  • Transactions are contingent on availability of funds, which reduces check fraud.
  • Despite the popularity of credit cards, a large number of U.S. consumers (about 70 million) don’t have a general credit account.

ACH payments are also favorable to customers. They eliminate postage expense, filling out checks, the possibility of late payments, and the possibility of lost or stolen checks.

How the ACH payment process works

The process for ACH payments is simple: a receiver (the party making payment) authorizes an originator (the party receiving payment) to issue an ACH debit request to an account. Then the originator submits an ACH entry to an Originating Financial Depository Institution (OFDI). The OFDI forwards the request to an ACH operator, who forwards it to a Receiving Depository Financial Institution (RDFI) that removes funds from the receiver’s account. For businesses that have an ACH account through a merchant service provider (MSP), the OFDI is the service’s acquiring bank (a.k.a. processing bank).

According to the rules and regulations that govern the ACH network—which are set by NACHA, The Electronic Payment Association, and the Federal Reserve—a receiver must authorize an ACH request to make it valid. Depending on the type of transaction, acceptance may be required in written, verbal, or electronic form. For business-to-consumer (B2C) transactions, the most common form of agreement is electronic, usually in the form of checking an “I agree” box after reading a set of terms and conditions.

Other uses for ACH transactions

When answering the question, “what is an ACH payment,” it should be mentioned that ACH transactions are useful for more than receiving payment. They are also used to manage payroll deposits, make vendor payments, and make insurance payments. NACHA-The Electronic Payment Association reports that 19.4 billion ACH transactions occurred in 2010, 92.1% of which were conducted by commercial entities. Of these transactions, 36.7% were credit transactions, a percentage that shows the popularity of ACH transactions for making payments.

At AVP solutions, we supply businesses with merchant accounts that support revenue growth. As statistics show, many Americans are displaying safer spending habits in the wake of the recession, choosing to pay by check instead of credit card. To start accepting checks the secure way, contact us about opening an ACH account today.


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