Understanding ACH Services

Among the many ways consumers can place payments, electronic transfers are quickly becoming the most popular. Understanding electronic payment services can help the small business owner reap the benefits of this convenient system.

The Basics of ACH Services

In the United States, our financial institutions are connected together as part of an electronic network called the Automatic Clearing House (ACH). The network is governed by the Federal Reserve and other authorized ACH Operators, although the Federal Reserve is believed to process a vast majority of all ACH transactions. The system allows for the smooth transfer of funds between financial institutions without the hassle and hazards of paper money or checks ever needing to change hands.

How an ACH Transaction is Processed

Five parties participate in any given ACH transaction. They are as follows:
  1. The Originator contacts a Financial Institution to request a transfer of funds, either as a debit or credit transaction.
  2. The Originating Financial Institution receives the request to process a transfer of funds.
  3. An ACH Operator is contacted by the Originating Financial Institution and processes the transfer request.
  4. The Receiving Financial Institution accepts the credit or debit request from the ACH Operator.
  5. The Receiver's bank account is either credited or debited as a result of the ACH transaction.

Reasons to Use ACH Services

The ACH system was created in the early 1970s as a quick and efficient alternative to the paper checks that were clogging up financial institutions. Today, a business owner will choose an ACH system of payment over traditional business services for many reasons, including:
  • convenience: Payments can be made quickly and efficiently without long bank lines. For instance, you can pay your employees through a direct deposit system that eliminates the need to print or cash checks.
  • cost effectiveness: ACH transactions are cheaper than processing paper checks, credit card transactions and wire transfers.
  • lower administrative costs: Less paper equals less administrative time in processing and bookkeeping.
  • security: The ACH system is an efficient and secure way to transfer funds.

Where to Acquire ACH Services

Your financial institution, as well as companies who act as ACH Processors, each has access to an ACH Operator and will be able to set up a system for you to take advantage of ACH services. Transaction fees do apply and can range from five to fifty cents. Consequently, be sure you shop around for the best deal for your business services.

Traditional Check Services: An Alternative to ACH Services

Paper check services are not on the brink of extinction. Many people are hesitant to put financial information on the Internet and prefer to use traditional paper checks. Similarly, small businesses that can't justify the fees associated with ACH transactions (and don't offer online buying options) will still prefer to use traditional check services.

If traditional check services are your choice, one way to protect your company is to sign up for a check verification service that will verify the check payment history of the person submitting the check. It is also possible to purchase check verification and guarantee services that additionally work as a type of insurance, covering your losses in the event a check is written with insufficient funds.

With the growing popularity of ACH services, today even small businesses can cash in on an efficient and affordable method of transferring funds.

Resources

Affirmative Technologies, Inc. (2008). Electronic Funds Overview. Retrieved February 29, 2008, on the Affirmative Technologies Web site: http://www.affirmativeusa.com/.

Wayne Akey (2002). ACH Processing - Merchant Account ACH Processors. Retrieved March 1, 2008 on the Website 101 Web site: http://www.website101.com/.

Google Answers (2004). Overview of ACH System. Retrieved February 29, 2008, on the Google Web site: http://answers.google.com/.

Merchant Seek (2007). Automated Clearing House (ACH) and Other ACH Services. Retrieved February 29, 2008, on the MerchantSeek Web site: http://www.merchantseek.com/.

Merchant Seek (2007). Check Guarantee/Verification. Retrieved March 2, 2008 on the MerchantSeek Web site: http://www.merchantseek.com/.

NACHA (2002). Understanding the ACH Network: An ACH Primer. Retrieved February 29, 2008, on the NACHA Web site: http://www.nacha.org/.

Maria Trombly (2001). Automated Clearing House. Retrieved February 29, 2008, on the Computer World Website: http://www.computerworld.com/.