FCCB Blog

ACH, which stands for “Automated Clearing House,” is a system of sending and receiving payments directly between bank accounts with significantly lower fees than credit card payments and faster processing times than checks. While you have likely used ACH in your own life, either in the form of Direct Deposit pay or recurring mortgage or utility payments, you may be wondering how your business can benefit from incorporating these automated payments into its financial management. In this post, we’ll discuss the ins and outs of ACH payments, when they might be most beneficial to use, and how they can save your business time and money.

How does the ACH Network function?

Using the ACH network makes payments easier for businesses and consumers alike, but the technicalities of the system might be off-putting to business owners who are used to paying accounts and employees with old-fashioned checks, or who already accept payments for goods or services using credit cards. But once you understand how it works, ACH is actually pretty simple, and can save you time and money with each transaction. 

The ACH Network is a collection of banks and clearinghouses overseen by the agency formerly known as “National Automated Clearing House Association,” now simplified to just Nacha. Nacha provides support, education, certification, and rules for operation, but they don’t make the payments and debits—you’ll use a third-party system that’s part of the network, like one offered through your bank, to actually initiate and accept the transactions. The Balance breaks it down this way: “The ACH system is a network of computers that communicate with each other to make payments happen. Two sets of computers are at work for each payment: The side that creates a request [and] the side that satisfies the request.” As a business, you may be on the receiving end, the sending end, or both!

With ACH, there are two types of transactions: Direct Deposits (sending payments from your account to another) and Direct Payments (requests to pull payments from another account into yours). If you are sending a payment through Direct Deposit, you will initiate the transaction through your bank, or whichever platform for ACH your business uses. Your payment will be sent out at the next set interval (financial institutions send payments four times a day) or on a recurring payment schedule. It will then be cleared at the Clearing House or through the Federal Reserve based on how quickly you chose to send it (same day, next day, or two day) and the money will be pushed from your account to the recipient’s automatically. If you are making a request for a Direct Payment, the procedure only changes slightly. Instead of making a request for money to come from your account and transfer to another, you are sending a request for money to pull from another account into yours.

What are the benefits of using the ACH?

Since its creation in 1974, Nacha has revolutionized the way we send and receive payments in the US, and is now one of the most common payment forms. In fact, in 2021 alone, nearly $73 trillion in transactions were made using ACH. Why are so many businesses and individuals choosing ACH over other payment methods? Here are some of the top reasons.

You can process payroll faster.

You might personally be most familiar with ACH payments through direct deposit, which, according to Nacha, is the way 93% of Americans are paid. ACH direct deposit is a faster and more reliable method of paying your employees than traditional, printed paychecks. Here’s why:

• ACH is simpler for you. Rather than printing and distributing checks in person or by mail, once the direct deposit information is set up you can simply upload your payroll information and your bank or ACH provider will do the rest! Simplifying your payroll process can not only save you the hassle of disbursing checks, but you can devote fewer employee hours to it, saving you money as well. For more details on how to set up direct deposit, check out this handy step-by-step guide from NerdWallet. 
• Checks are slow. A deposited check usually takes 2-7 days to clear, but ACH debits and payments can be processed in as little as a day, making balancing your own books much easier and more orderly. You can choose how fast you need the payment processed—same day, one day, or two days—depending on timing and cost (each bank or ACH service provider has different fee rates, but same day transactions tend to cost a little bit more). Most employers account for the processing time by simply adjusting payroll schedules. As Nacha’s article, “Payments Myth Busting” explains, “Employers may choose to schedule payroll Direct Deposits 1-to-2 days in advance so that they can efficiently pay workers via Direct Deposit and have money available in their employees’ accounts by 9 a.m. on payday.”
  
  
• Checks can get lost. With ACH direct deposit, you never have to worry about canceling and reprinting lost checks. And replacing lost paychecks can not only be a hassle, it can also be costly when factoring in fees for stopped payments, which are usually the responsibility of the employer to cover and can run about $30 per check. 
  
  
• ACH is not just for paychecks. ACH direct deposit doesn’t just replace employee paychecks. It can handle nearly every monetary transaction between you and your employees. You can use it for many other payments and reimbursements, from travel expenses to bonuses, commissions, and pension disbursements. 

For more information on how Direct Deposit can make payroll easier for you, visit Nacha’s guide, How Direct Deposit Works. 

You can save money.

In addition to streamlining payroll, ACH can save your business money in any way you send or receive payments. Credit card fees, which run 1.5-3.5% per transaction, can quickly add up, especially with larger payments. And while cheap themselves, processing physical checks takes up valuable employee time and wages. Accepting payments through ACH can not only cost less per transaction than credit cards, but, because they are deposited directly into your bank account, it can save you on employee accounting costs, as well. Consider ACH as a cost-effective alternative to both checks and credit cards. 

ACH offers better security.

Direct Deposit and Direct Payments are, as implied by their names, direct, from one account to another. This means that there are fewer channels that your financial information must pass through, decreasing the risk of a data breach. And while checks might seem resistant to cyber-security issues, check fraud—the stealing and illegal cashing of checks—is currently surging in the US. Additionally, when you send a payment using a paper check, all your account information is printed right on the front of the check. As The Balance explains, one of the main pros of using ACH is that it “??minimize[s] paper records that carry sensitive banking information.” With ACH, account numbers are confidential, and only exchanged between the two parties involved. 

So how is ACH security guaranteed? Financial institutions are required by Nacha to use a “commercially reasonable fraudulent transaction detection system” in order to identify fraud and validate accounts before approving debits from their customers’ accounts. But even if an illegal ACH payment were to slip through the cracks, consumers have up to sixty days to report the transaction in question to their bank to avoid liability. Businesses, on the other hand, can request ACH Block and ACH Filter services from their financial institution for an additional layer of protection. 

ACH is more convenient for both businesses and customers.

ACH transactions not only are cost-effective and reliable, they remove the hassle from sending and receiving payments. Once a business chooses a platform and sets it up for ACH payments and debits—even simpler if that platform is through their own bank—sending, accepting, and requesting payments through ACH is a snap. This is where the ‘automated’ part of ‘Automated Clearing House’ comes into play. Once a request is put in to either “pull” (take or debit) money from a customer’s account, or “push” (deposit or pay) money into an employee’s, other business’, or your own account, no further action is needed from either party involved. 

To make things even easier, many payment platforms allow customers to set up automated recurring payments themselves, like subscription services and rent—meaning your business has little to do on their end except balance the books, and customers never have to worry about missing a payment. 

In addition to recurring payments, ACH is useful for certain one-time payments as well. As NerdWallet points out, “You can also accept payments that might be too high for a customer’s credit limit if you send high-dollar invoices for bulk orders or more expensive services like construction.” 

You can move funds internally with ease.

So far, we’ve talked about how the ACH system can make it easier for you to pay your own bills and employees, or for your customers to pay you, but ACH can also make it easy for you to move funds internally. If your business has multiple accounts at different financial institutions, using ACH in lieu of expensive and often slow wire-transfers, which can cost as much as $30 each and take up to 48 hours for the receiving bank to clear, can be an efficient and economical choice. 

If writing checks is your go-to method of transferring funds, ACH is nearly guaranteed to get the money from one account to the other more quickly. And finally, consider that the small fee for ACH might pay for itself when you factor in time saved by not having to task an employee to write out and deposit a check at another financial institution. 

Ready for ACH to Work for You?

If you are curious about ACH payments and debits, or are looking to cut costs or streamline your business financial management under one, local institution, consider what our Business Services Team has to offer. With our Online Cash Management services, you can experience all the benefits of banking with ACH, from using your FCCB business checking account to pay your employees and bills electronically, to collecting payments like membership dues and rent with ease. 

With services like Online Banking and Bill Pay, Business Loans, and Business Investing, FCCB can help your small business modernize for today and prepare for the future. Ready to make the move to automation to save time and improve your cash flow? Reach out to us or stop by your local branch to find out what we can do for you!