Everything Businesses Must Know About ACH Payments


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Automated Clearing House (ACH) payments are electronic payments made via the ACH network. It securely, conveniently, and cost-effectively facilitates funds transfer between two bank accounts.

ACH payments eliminate paperwork and offer an efficient way to receive payments. It is inexpensive since these payments are processed in batches, reducing the transactional fees.

It lets banks access the network to pull or push funds at request with a one- to two-day settlement timeframe.

What are the Benefits of ACH Payments?

1. Recurring Billing

ACH payments are ideal for businesses that operate on a subscription-based model. Subscription-based companies, or regularly billing businesses, face many challenges.

The payment processing costs are high due to recurring transactions. The customers can also sometimes miss paying the bills. It results in cash flow issues and unpaid invoices.

ACH payments help businesses save on their payment processing fees. Cumulatively, these savings can significantly affect the merchant’s bottom line. With repeat billing, customers can pay their bills on time.

2. Rapid Processing Time

Businesses primarily prefer ACH payments over paper checks. This is because they can make ACH payments online, unlike a traditional paper check, which has to go through the mail. It cuts down the processing time.

3. Improves Sales Conversion and Customer Relationships

Customers are not required to write a check while making ACH payments. It increases the acceptance of converting them at a scale.

During recurring purchases, payments through ACH are automatic. It means the customer does not have to worry about paying bills or receiving funds. This eliminates the friction in customer relationships with the business.

4. Remote Payments

Credit cards offer customers the option to pay online or by phone. But, ACH provides an ideal alternative for customers who prefer to hide their credit card information or do not have one.

5. Better Payables Management and Automated Recordkeeping

ACH payments run in batches scheduled to optimize cash on hand. At the same time, banks can record, compile, and report the ACH transactions. They can also download the records into a business’s accounting system.

6. Minimizes Human Errors

ACH payments save time as it does not rely on a physical paper check. As per a recent report by IBM, “Cost of a Data Breach Report 2022,”

Cost of a Data Breach Report 2022,”

ACH allows the employees to prioritize more productive tasks since these payments take less time to process, eliminating the chances of human errors.

What are the Common Challenges of ACH Payments?

1. Scheduled Transaction Timings

ACH operators process transfers in batches. Clearing houses have fixed timings for sending requests to ACH operators. Hence, instant or same-day payments and processing are unacceptable. Thus, initiating a transfer after the scheduled time results in delays.

It can lead to paying penalties and missing payment deadlines. This makes ACH transfers unsuitable for emergency or time-sensitive transactions.

2. Transactional Limitations

Banks using the ACH system set limits on the frequency of ACH transfers. They also have set limits for deposits and withdrawals and will likely restrict international transfers.

For example, customers may have monthly or weekly limits depending on how often they can use the ACH system. Not adhering to these limitations results in penalization fees.

Moreover, if errors occur, the ACH system facilitates fund reversals. But the process takes a long time and requires paperwork.

3. Account Details Sharing

The ACH system requires customers to share their account details with clearinghouses and banks. Due to this, the transfer systems offer account links to banks the customer might not prefer.

An ACH system may need customers to have enough funds to avoid account overdrawing.  Overdrawn accounts need service fees that lead to high customer costs.

What are the Security Challenges of ACH Payments?

ACH fraud occurs when attackers steal funds via the ACH network using a customer’s bank account details and routing numbers. Using this data, hackers can transfer money from the victim’s account simultaneously or as recurring payments. They can also make unauthorized payments for products or services. The time delay factor is a vulnerability hackers exploit.

Criminals can also commit imposter scams using Authorized Push Payments (APPs) to trick customers into making ACH transactions. Furthermore, they can use the customer’s credentials to submit unauthorized ACH transactions in the customer’s name and seek funds via ACH debit.

How Can Banks Overcome Common Challenges?

1. Transaction Delays

To prevent delays, use a service that offers same-day or next-day ACH payments. Also, scheduling the payments in advance can help reduce the processing time. Communicate with the clients and vendors about the anticipated payment dates and confirm the receipt of the funds.

2. Customer Satisfaction

Customers may experience dissatisfaction if they encounter delays or errors with ACH payments. To prevent this, offer customers multiple payment options.

Banks must communicate about payment terms, fees, and policies to them. Moreover, handle any issues or complaints promptly.

3. Costs and Fees

ACH payments are inexpensive but still incur some fees that can add up. The fees vary per the bank, the service provider, and the transaction type. Compare different banks and service providers.

This will help you choose the best rates and features for the ACH payments—moreover, the ACH transactions to avoid incurring unnecessary or excessive fees.

How Can Banks Overcome the Security Challenges?

1. Fraud

Banks must deploy security measures to secure their accounts and customers against ACH fraud. Adding extra protection will help protect sensitive information.

Here’s how banks can facilitate a secure payment.

  • Authorization

The originator and the receiver enter into an agreement where the originator initiates a debit entry to the Receiver’s bank account. Authorization is when the receiver grants access to the bank account. But, the Receiver must also prove that they trust the other party.

  • Authentication

Authentication is the identity verification of the ACH transfer’s receiver. It checks the type of transaction, the customer, and the stakeholders.

Also Read: How Fintech Devices Are Transforming Banking and Payments

2. Hacking

Banks facilitate ACH payments online. Hackers use this as an opportunity to compromise ACH transactions. They can threaten ACH users by phishing or account takeovers. Hence, storing data in the Payment Card Industry (PCI)-approved software and hardware is essential.

Always ensure the service providers are approved by the National Automated Clearing House Association (NACHA). Moreover, it encrypts the electronic storage of debit and credit card information. Set up secure storage of confidential financial information to facilitate proper ACH network payment processing.

Here are some other factors to consider-

  • Banks must be FDIC-insured
  • They must use NACHA’s third-party risk management resources
  • Conduct audits on the cybersecurity model
  • Allocate enough funding for cybersecurity
  • Seek adequate NIST maturity level
  • Conduct an ACH risk assessment to identify risks associated with ACH transactions.

A NACHA representative conducts audits every two years. But, the banks must also conduct internal audits to maintain compliance. Always ensure compliance with NACHA guidelines to successfully operate as an ODFI or RDFI on the ACH network.

Apoorva Kasam
Apoorva Kasam
Apoorva Kasam is a Global News Correspondent with TalkCMO. She has done her master's in Bioinformatics and has 18 months of experience in clinical and preclinical data management. She is a content-writing enthusiast, and this is her first stint writing articles on business technology. She specializes in marketing technology, data-driven marketing. Her ideal and digestible writing style displays the current trends, efficiencies, challenges, and relevant mitigation strategies businesses can look forward to. She is looking forward to exploring more technology insights in-depth.


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