The National Automated Clearing House Association and the Federal Reserve both oversee this extremely important money exchange system that handles large volumes of debits and credits in batches.
ACH Payments Processing
ACH payments processing is conducted by both the Federal Reserve Banks and the Electronic Payments Network (EPN). The Federal Reserve handles about 60 percent of commercial interbank ACH transactions, the EPN handles the remaining 40 percent.
The two work together when transactions involve payment processing that does not involve their own customers. Customers generally have no knowledge of which entity handles their funds, simply confirming that the money has cleared by reviewing their own accounts.
Advantages and Disadvantages for Businesses
ACH payment processing is preferred by businesses over other payment methods that do not involve cash. These payments are received quickly and processed faster, with funds deposited directly to the merchant’s account.
Businesses do not have to wait for a check to clear. Moreover, mistakes are limited, such as when a customer writes the wrong amount for a check or a check is sent in late. And if there is a bad payment received, ACH automates its collection.
One disadvantage with ACH is that you will have to pay a fee per transaction and pay for set-up costs. Generally, it is worth the cost to select this arrangement as it offsets the expense of internal collection and bookkeeping. Users should also keep in mind that deposited money is not always available for use immediately. However, processing is much faster than with checks, a point not lost on businesses.
Advantages and Disadvantages for Customers
Writing checks has long been a habit for consumers, but with ACH payment processing that requirement ends — at least for those types of transactions. Because the system can be automated you can schedule payments without having to remember to make them. You save on the cost for buying checks, paying for stamps, and the time expended for writing out payments and mailing them to your creditors.
Keep in mind that with ACH you must share information about your bank account with a business. Infrequently, but still possible, you could be billed for the wrong amount. Also, if you do not keep enough funds in your account, the system could overdraw your account, resulting in service fees. Learn how this process works to take advantage of its many benefits.
Small Business Owners
For many small business owners, ACH payments processing offers advantages that make this payment option very appealing. For one, you can make business-to-business payments with ease. Also, you can use ACH to make direct deposit of your payroll, ensuring that everyone that works for you is paid on time and for the right amount.
Small business operators can also use ACH payments processing to handle recurring payments including a mortgage, utility bills, and loan payments. ACH is also conducive to handling e-commerce payments and taxes including local, state, and federal tax payments.
See Also — Accepting Credit Card Payments for Your Small Business
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