Automated Clearing House (ACH) payments are electronic payments made through the ACH network, an electronic network that handles a variety of transactions occurring in the United States, with some of most common being: payroll deposits, mortgage bills, utility bills, insurance bills, B2B (business to business) payments, and ecommerce payments. For businesses, an ACH online payment has several advantages over imbursement by check, money order, or telephone, particularly:
1. Timely payments
If left to mail or phone in payments, many customers procrastinate, which translates into your business missing out on money that could be in its accounts, which could translate into lower investment ratings. While late payment may not put your company out of business, they do make its present finances more complicated.
2. Fewer late fees
While some entities profit handsomely from late fees, they can cause other entities to lose money in the form of lost customers. While consumers always pay late fees to entities whose services are essential, such as banks and insurance companies, they often become non-payers when faced with late fees for services that are more dispensable. ACH benefits customer retention by helping to prevent late fees.
3. Faster access to funds
ACH imbursements take less processing time than standard debit and credit imbursements, roughly 1-2 days compared to 2-3 weeks, respectively. Posting imbursements to a company’s account sooner than later allows it to realize more financial flexibility in the present, especially if a majority of its income comes from ACH pay.
4. Less collateral expense
With traditional methods of imbursement come several expenses that ACH pay eliminates, such as: paper, postage, and extensive telephone staff. Automatic payments can also decrease the expense of collection action, whether in house or through outsourcing, as they make it harder for late fees and missed payments to accrue.
The drawbacks of ACH pay aren’t drawbacks as much as they are contingencies that should be addressed in order to profit from the arrangement, such as:
1. Offsite data storage
Offsite data storage can be found inexpensively through Software as a Service (SaaS) providers that specialize in data security and storage, or merchant services that offer the same service. Keeping pay data stored offsite in encrypted form is crucial to preserving it from fires, flooding, or hardware theft.
Like all systems that use stored financial information, the ACH system is a target for fraud, both internally and externally, with statistics showing the former poses the greatest risk in terms of data theft. Fraudulent activity can be greatly decreased by the presence of firewalls that protect against interior and exterior malicious activity, and also by engaging in smart personnel practices, such as the four below:
1. Using permanent rather than temporary employees for certain jobs
2. Separating critical duties as much as possible
3. Intensifying screening procedures for certain positions; and
4. Resetting passwords to sensitive accounts on a regular basis
In my research on merchant services, I’ve studied the benefits and drawbacks of ACH online payment.