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ACH Payments: What Your Business Needs to Know

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Your business depends on flexibility in all areas, including how you accept payments. The more payment options you give customers, the more likely they are to buy from your company.

Automated clearing house (ACH) payments have given companies a way to do this. According to the National Automated Clearing House Association (NACHA), ACH payments accounted for nearly $56 trillion in payments between consumers, businesses, governments, banks, and other entities in 2019. Why? ACH payment processing transfers small or large amounts of money seamlessly, safely, and dependably. Consequently, ACH processing has become a trusted way for people and organizations to move money digitally.

Make no mistake: People and businesses appreciate having fast, online access to their money. Leveraging the power of ACH payments allows them to rely on digital wallets.

In 2020, consumer cash use decreased by 10 percentage points. As society continues to move toward more paperless forms of money, people have become accustomed to paying without cash. Additionally, they tend to write and receive fewer checks.

This move toward financial digitization makes now the right time for your company to consider adding ACH to your payment lineup. However, even if you already use it to deposit funds into your employees’ bank accounts directly, you’ll need a good idea of how ACH processing for business works to make it part of your operations.

An ACH transaction involves five different entities: the receiver, the originator, the originating depository financial institution (ODFI), the receiving depository financial institution (RDFI), and the ACH operator.

Working together, these parties swiftly send messages to one another and ensure that ACH transactions occur accurately and consistently.

Here’s a real-world example of an ACH credit transaction between a consumer and a business. After reading it, you’ll have a better understanding of how ACH transactions work:

Josh is a busy professional trying to make his life easier. He wants to set up automatic payments to cover his monthly auto insurance premium, so he doesn’t have to initiate payments every month — and possibly miss one by accident.

He authorizes his auto insurance agent to deduct his monthly premium from his checking account. As long as he has sufficient funds in his bank account, the transaction occurs like clockwork.

Now, let’s dissect the same scenario using the five-entity language and break down the ACH processing system.

In our example, Josh is the originator, and his bank is the ODFI. Josh’s auto insurance carrier is the receiver. As the receiver, the insurance carrier relies on its bank (which is its RDFI) to verify Josh’s information and send a request through the ACH operators to his ODFI.

Once the transaction is confirmed, the ODFI debits Josh’s account, making the funds available to his insurance carrier’s........

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