How to accept ACH payments for your business

Getting paid quickly and reliably is crucial for running a business, and thankfully, it doesn’t have to be complicated. If you’re looking for a way to streamline and simplify your payment process, you may want to consider accepting Automated Clearing House (ACH) payments. ACH payments are especially handy if you’ve got customers who pay on a recurring basis, like for subscriptions or membership fees. It can also be a great option for sending and receiving payments with vendors, suppliers or other businesses.

Read on to learn more about ACH payments, how they work and whether accepting them makes sense for your business.

What you’ll learn:

• ACH payments are sent electronically through the Automated Clearing House network and can be a simpler, more affordable alternative to checks and credit card payments.

• There are differences between ACH payments and wire transfers, including how much they cost, how quickly they go through and where you can send them.

• Accepting ACH payments can be a more cost-effective and secure option, but there are also some drawbacks—like slower processing times.

ACH payments are electronic payments sent between banks or parties through a network called the Automated Clearing House. You’ll often see them used for transactions like monthly payments or direct deposits. They’re a quick, cost-effective and secure way to send and receive money.

For businesses, accepting ACH payments can make things easier for your customers and improve customer satisfaction. It cuts out the hassle of paper checks and credit card processing fees. Plus, the ACH network can handle all sorts of transactions—everything from paying vendors and managing payroll to making charity donations and paying taxes.

The ACH network helps process payments and other transactions by connecting banks, credit unions and financial institutions all over the United States. There are a few key players that make it all work, including:

• National Automated Clearing House Association (Nacha): This organization regulates the ACH network, sets the rules and manages the ACH transfers

• The Originating Depository Financial Institution (ODFI): This is the institution that starts the ACH transaction

• The Receiving Depository Financial Institution (RDFI): This institution accepts the ACH transfer request

The ODFI sends a request for the payment amount to the RDFI, which confirms that there are enough funds to complete the transaction. Once everything checks out, the transfer gets approved.

 Here’s how it works when a business decides to accept ACH payments:

1. The customer authorizes the payment by submitting an online form or providing written consent.

2. The business—or its payment processor—transmits the payment request to its bank.

3. The business’s bank sends the payment details to the ACH network.

4. The ACH network forwards the transaction to the customer’s bank.

5. The customer’s bank processes the debit and releases the funds.

6. The money typically shows up in the business’s bank account within 1-2 business days.

ACH payments and wire transfers are both types of electronic funds transfers (EFTs), but there are several key differences:

• Domestic versus international: ACH payments can only be sent within the United States, while wire transfers can be sent internationally.

• Cost: In general, ACH payments cost less than wire transfers.

• Security: ACH payments come with built-in fraud protections and a chance to reverse payments, while wire transfers are final once processed.

• Speed: Wire transfers are processed in real time, while ACH payments are sent in batches and usually take 1-2 business days to settle.

• Number of payments processed: ACH payments are great for handling a lot of payments at once, like payroll or recurring charges.

There are a few steps you’ll need to take to enable your business to accept ACH payments.

Start by thinking about your business needs. ACH can be a great fit if you regularly collect recurring payments like subscriptions, memberships or invoices. It can also be useful if your customers prefer to pay from their bank accounts rather than through their credit or debit cards. Once you’ve decided ACH is a good match, here’s what the setup process looks like:

• Step 1: Open a business bank account. To accept ACH payments, you’ll need a business checking account. This is where the funds will land once payments are processed, so make sure the account is set up to handle EFTs.

• Step 2: Choose an ACH payment processor. Next, pick a provider to process your ACH payments. This could be your bank or a third-party payment platform. Look for one that meets your criteria—including how fast payments are processed, the fees involved and whether it works well with any software you’re already using. You might even need multiple providers, depending on how you plan to accept payments—for example, through online checkouts or recurring billing.

• Step 3: Get authorization and banking details from your customers. Before you can withdraw money from a customer’s account, you need their permission. This usually entails having them fill out and sign an authorization form, either online or on paper. You’ll also need their bank details, including their routing and account numbers.

• Step 4: Submit the payment. Once you have everything you need, submit the payment through your ACH system. You’ll enter the payment amount, customer’s bank info and date for the transaction. Payments usually take 1-2 business days to clear, and then the money will show up in your account.

Accepting ACH payments can be a game changer for your business. Here’s a look at a few of the benefits they offer:

• Cost savings: ACH payments usually cost less to process than credit cards or paper checks. That means you get to keep more of what you earn. This is particularly helpful if you’re dealing with large transactions or regularly recurring payments.

• Safety and reliability: ACH transfers go through a secure, regulated network, so you don’t have to worry about lost checks or stolen card numbers. They’re a trusted way to move money without the extra hassle.

• Simplicity and efficiency: ACH allows you to automate payments, saving you time and cutting down on errors. That means no more trips to the bank to deposit checks or tracking down payments for recurring services.

• Improved cash flow: Accepting ACH payments can make life easier for you and your customers. They get a convenient way to pay, and you get fast turnaround times, with money usually transferring to your account in a couple of business days. That kind of consistency can help you manage your cash flow more effectively.

While accepting ACH payments for your business has plenty of perks, there are a few downsides to think about:

• Slower processing: ACH payments usually take 1-2 business days to clear, and even longer if you’re sending or receiving money over a weekend or holiday. If you need funds right away, it might not be the fastest option.

• Limited availability: ACH payments only work within the United States. If you have customers or vendors overseas, you’ll need to use a different payment method, such as a wire transfer or a global payment service.

• Not ideal for in-person transactions: ACH payments are designed for transactions such as online checkouts or recurring billing. You can’t just swipe an ACH payment like a credit card, so if you rely on point-of-sale (POS) payments, this method might not be the best fit.

• Risk of failed payments: If a customer enters the wrong account information or doesn’t have enough money in their account, the transaction could bounce. That means delays—and sometimes added fees—so it’s something to watch out for.

If your business is looking for a way to streamline transactions, cut costs and offer your customers a safe, convenient payment option, accepting ACH payments could be a smart move. Though there are some downsides—like slower processing times—the benefits usually outweigh the limitations. By understanding how ACH payments work and what’s involved in setting them up, you can make an informed decision about whether it’s the right choice for your organization.

If you’re looking for ways to manage your business’s finances more effectively, Capital One has a variety of business credit cards designed to meet your needs. Compare business cards today and see if you’re pre-approved with no impact on your personal credit score.