The Automated Clearing House Network (ACH) facilitates the electronic transfer of money from one business to another. Businesses can use ACH to make and request payments for services. Compared to more traditional payment methods, it is seen as a superior and simpler approach for service payment.
Further, let’s understand more about ACH Payments and how B2B ACH payments work.
What is Business to Business ACH?
The term ACH, or Automatic Clearing House, refers to the computerized payment network that connects all bank accounts in the United States. ACH transactions, developed in the 1970s, are still a popular company payment mechanism today as an option for using the credit card network or cheques. ACH for Business is classified as electronic funds transfers (EFT).
It is an electronic payment system that moves payments from one bank to another within and outside the United States. Automated transfers and direct e-payments are examples of ACH network transactions. As a result, traditional wire transfers and old-fashioned paper checks are rendered obsolete.
How do B2B ACH payments work?
B2B ACH payments enable businesses to provide customers with direct, secure, and automated payment alternatives. Customers can complete payments via ACH and send the owing funds straight from their account rather than using their credit or debit card to pay for services.
ACH credits provide payments to the receiver, whereas ACH debits request that removal of funds be sent from one account to another. The automation of Business to Business ACH payments makes them an excellent choice for firms dealing with regular bills and multiple clients.
The money from the ODFI is inspected and processed by the Federal Reserve or the Clearing House during the B2B ACH process. The transactions will be completed within one to two business days.
Which types of businesses accept ACH payments?
There are two forms of ACH payments, both of which are classified as direct payments:
- Direct Deposits: Direct deposits are any transfers from a government organization or business to a consumer’s account at a financial institution using the ACH network. The most common example is employee payroll, which is deposited straight into a checking account.
- Direct Transfers: Individuals, businesses, and other organizations that send money to one another are referred to as direct transfers. When a company chooses to pay another company by ACH direct transfer, the organizing company “sends” the money through the ACH network, which debits the bank account and credits the receiving company’s bank account.
The most important fact is that ACH Payments are a digital payment type offering electronic fund transfers from one business to another.
What kinds of businesses accept ACH payments?
Although almost any business can use ACH accounts at their bank or credit union, it’s more beneficial for certain types of businesses and industries. Here are some examples of businesses that work well with the ACH system:
- Subscription-based services: ACH payments are a better option than credit cards if your company’s strategy includes collecting monthly customer payments. The minimal processing fees associated with ACH payments are not detrimental to your budget. ACH payments do not upset clients who miss a payment owing to an outdated credit card.
- Rent: ACH debit is a terrific way to pay and collect rent. ACH payments are safer and faster because tenants do not need to provide rent cheques.
- Invoices and services: Construction companies and organizations that send large bills should also consider accepting ACH payments.
Clients will appreciate not having to write hefty checks or worry about them getting lost in the mail. Instead, their ACH payment is taken directly from their bank account and placed into yours.
What are the Benefits of business-to-business ACH?
Here are some of the benefits of Business-to-business ACH payments. Let’s have a look at them.
- Cost-effectiveness: As previously stated, ACH payment processing is a substantially less expensive alternative to credit cards for sending and receiving business bank accounts. There are no monthly fees associated with using ACH payments.
- Convenience: ACH payments are convenient since they eliminate the need for invoices and paper checks. They also require little to no labor to enter into a record-keeping system because banks produce an electronic record with each transaction.
- Experience: A paperless payment experience provides an improved experience for buyers. The ACH payment experience is also superior to the echeck (electronic check) payment experience. Buyers can plan payments with ACH to ease the process further.
- Accessibility: Any company with a bank account in the United States can pay and receive payments using ACH. All they have to do is supply the necessary entity with their account information.
- There is no time limit: A credit card has a usual lifespan of three years, whereas a bank account has a typical lifespan of fourteen years, considerably minimizing the possibility of a missed payment. Unlike credit cards, there is no expiration date to remember; thus, there is one less reason for refusing a payment.
- Security: Because the US government controls ACH, those involved are expected to follow basic security protocols that are comparable to credit card standards to protect sensitive information, such as payment data.
What are the drawbacks of business-to-business ACH?
Business executives regard processing times as the most significant disadvantage of ACH. A several-business-day processing time following a customer payment is not ideal for a corporation wanting to unlock cash flow immediately.
Furthermore, federal holidays, weekends, and the time of request affect how soon an ACH transfer is executed, and same-day ACH transfers are not always possible. The only type of EFT that is settled in batches is ACH. Other EFTs, such as digital wallets, ATM transactions, and debit card payments, are instantaneous.
Receiving return codes is another disadvantage of ACH payments. Return codes are typically seen with ACH payments when all or some bank account details are wrong. In some circumstances, the payment may be returned due to fraud concerns.
The Returning Depository Financial Institution (RDFI) is notified when an ACH payment is returned. The RDFI must eventually notify the originator or sending firm that set up the transaction request that the payment cannot be completed for whatever reason.
Here are two of the most common ACH return codes:
- Insufficient money for R01: Insufficient funds can cause severe delays in ACH payments. When this occurs, the RDFI will send an ACH return code to the merchant account or originator, which should be addressed immediately to the buyer. Before retrying the ACH payment, the buyer must check that sufficient funds are in their account.
- R03 Account not found/unable to locate the account: This return code is typically generated when the originator’s bank account details are incorrect.
Streamline your B2B ACH payments with Cheqly!
If you are looking for a payment system to streamline your financial requirements for transferring money within the state or internationally, then Cheqly will be your one-stop solution. With Cheqly, you can perform business-to-business ACH transfers for free. Sign up for a free account now and start streamlining your B2B ACH payments today with Cheqly.