Understanding ACH Payment Processing
ACH stands for Automated Clearing House and is a method to electronically transfer funds from one bank account to another. This method has been in use for more than 40 years and was introduced as an alternative to traditional money transactions through paper checks. It is more convenient, faster, secure and cost-efficient way to transfer funds.
ACH payments are under the control of the ACH network which is further monitored by the National Automated Clearing House Association (NACHA). NACHA regulates the electronic payments so that depositary financial institutions can become a part of the ACH network.
Who can Use the ACH Payment Processing Method
The ACH payment processing method can be used by both business organisations and governmental institutions. It can be used for payroll deposits and tax returns. More and more people are adopting the ACH processing because it is a safer way to set up recurring bills for loans, utilities and mortgages as compared to the traditional payment methods.
Uses of ACH Processing
- Direct payroll deposits
- Social security by government agencies
- Tax refunds
- Recurring payments like bills and insurance premiums
- B2B payments
- Local, federal and state taxes
How Does ACH Processing Work
ACH processing is a 4 step procedure. The 4 steps have been described below:
The originator starts the process of ACH payment processing. You are the originator and can be called a merchant as well. You as the originator are required to receive an authorization and bank account information to be able to start the process of ACH payment. After that, your request is processed by us and the bank. This is the point where the request for the transfer of funds owned by you is sent to the bank.
2. Initiating the Funds Transfer
The request for the transfer is sent to the customer’s bank in a file format that is supported by NACHA. This file request includes the amount of money that needs to be transferred, the date of the transaction and a unique number associated with the transaction. The ACH processing will only occur when both parties have confirmed permission for the fund transfer. The customer bank then reviews the request sent by the processor bank. They decide if the request is to be accepted or declined. The decision has to take place within a limited period of time and a reason needs to be stated in case the request is declined.
3. Primary Fund Transfer
After the request has been approved, the customer’s bank transfers the funds to the processor bank. This stage can take almost 1 to 3 working days to be completed but often, it can be completed as quickly as overnight.
4. Secondary Bank Transfer
This is the stage when the funds are transferred from the ACH processor bank to the account of your company. After the primary fund transfer has been analysed, the funds are released to get settled in your company’s account. The typical time period to settle the funds is about 1 to 5 working days but it can depend on what bank is your account with.
Facts and Statistics About ACH Processing
- The ACH network works on the concept of batch processing. Financial institutions can collect transactions all day long and then send them for processing in batches.
- ACH payments are processed faster, more securely and at much cheaper rates as compared to traditional payment methods.
- The types of transactions that can be processed using ACH processing include direct payments and direct deposits. Direct payments are processed when funds are taken from the bank account by an organization or individual for a payment. Direct payments can be processed as ACH credits or debits. Direct payments processed as ACH credit are completed by pushing the funds into the bank account. Examples include payroll payments. On the other hand, direct payments completed as ACH debits are pulled out of the bank account such as monthly utility bills and loans. NACHA’s rules state that all transactions must be settled quickly so ACH credits take 1 to 2 working days to get settled while debits get settled the very next working day. NACHA is also working towards providing same day settlements.
- The total amount of transaction volume through the ACH network has risen up to 23 billion in 2014 which indicates a 5% increase from the statistics of 2013.
- The dollar value of all the transactions using the ACH network is worth $40 trillion which is a 3% increase from 2013.
- A 7.3% increase was recorded for B2B transactions taking place through the ACH network.
- Recurring payments that form the largest portion of ACH transactions has seen a 4.4% increase in 2014.
Contact Us for Information about ACH Processing by ACHProcessors
For further information on ACH processing, we welcome you to contact us. You can get in touch with us through email mentioned on our contact us section. We typically respond back within 24 to 48 hours after receiving your message and provide all the relevant information on ACH processing required by you.