How to accept ACH payments as a business

ACH (Automated Clearing House) payments have emerged as a popular and secure solution, especially for online payments. Major players like QVC, Walmart, Amazon, Wayfair, and eBay all accept ACH payments at checkout as an alternative to credit or debit card payments.

This demonstrates the method's convenience and security and also its growing prominence in the e-commerce world. In this article, we’ll explain how your business can start accepting ACH transfers.

How to accept ACH payments as a business

ACH payments are electronic payments made through the ACH network, typically used for direct deposit of payroll and automatic bill payments. They’re an inexpensive and secure alternative to wire transfers or paper checks. As a business, it’s a great additional payment option to offer your customers.

Here's how to accept ACH payments:

Choose a payment processor

To initiate the process, choose a payment processor capable of managing ACH transactions. Options range from traditional banks to specialized ACH payment processing firms or digital payment services. Be sure to evaluate each processor's transaction fees, range of services, and security protocols to determine the most suitable one for your business's needs.

Establish a merchant account

After deciding on a payment processor, the next step is to create a merchant account tailored for overseeing ACH payments. This account will give your business access to the ACH network and let you request payments from customers.

To open a merchant account, you’ll need to provide:

• Your business name
• Your business address
• Your personal ID
• Business documents (business license, operating agreement, etc.)
• Federal tax ID number
• An estimate of your regular transaction volume

Obtain authorization

For ACH payments, you’ll need to obtain authorization from your customers. This can be done through a signed form or an online agreement. The authorization should specify the amount, timing, and frequency of the payments, particularly for recurring transactions.

Verifying your customer’s bank account typically happens at the same time. You’ll need their account details to complete the transaction, including:

• Their name
• The name of their bank
• Their bank account number
• Their routing number

Establish payment protocols

Define how you'll handle ACH payments, including payment terms, authorization requirements, and procedures for handling failed or returned payments. Clear protocols help in managing cash flow and maintaining good customer relations.

Integrate ACH payments into your payment system

Once your merchant account is active, the next move is to embed ACH payment methods into your current payment framework. How this integration unfolds depends on the nature of your transactions, whether they occur online, face-to-face, or through invoice-based processes.

Maintain security and compliance

Make sure your ACH payment process complies with relevant regulations, such as the NACHA (National Automated Clearing House Association) rules, and maintains high security to protect customer data.

Is there a fee to accept ACH payments?

Yes, choosing to accept ACH payments typically involves certain fees, which are generally more affordable than those for credit card transactions. The specific costs associated with ACH payments can vary based on the service provider or bank a business chooses.

The specific fees a business faces are influenced by its nature and the risk level it poses to the payment processor. Before you choose a financial institution or payment processor, be sure that you understand their fee breakdown. Some providers offer different pricing plans for same-day ACH payments.

Despite these fees, ACH payments remain a favorable option for many businesses, especially for handling regular, high-volume transactions like payroll or recurring bills, due to their overall cost-effectiveness and processing efficiency.

Advantages and disadvantages of ACH payments

On the plus side, ACH payments are cost-effective, generally incurring lower fees than credit card transactions. This makes them ideal for regular, large-volume transfers like payroll. ACH payments are also secure, processed through established networks that provide safety and reliability. They also simplify recurring payments, allowing for hassle-free, automated transactions.

However, on the downside, ACH payments can have slower processing times compared to other electronic funds transfers (EFTs) like credit cards, which might not suit businesses needing immediate fund clearance. There's also a risk of returned payments due to insufficient funds or account errors, which can disrupt cash flow. Additionally, setting up ACH payments requires initial administrative effort and customer authorizations, which can be a hurdle for some businesses.

ACH payments vs. wire transfers

ACH payments and wire transfers are both electronic means of moving funds, but they operate quite differently. ACH payments, processed through the Automated Clearing House network, are typically used for regular, domestic transactions like payroll, bill payments, or direct deposits. They’re cost-effective, often having lower fees than wire transfers, and allow for batch processing, which is great for multiple transactions.

However, ACH payments usually take a couple of business days to process. In contrast, wire transfers are a faster method of sending funds, often clearing within the same day, making them ideal for urgent or large transactions, including international transfers. They provide a direct bank-to-bank transfer but come with higher fees and are generally used for one-time, high-value transfers.

While ACH is preferable for routine, domestic transactions due to its cost and convenience, wire transfers are better suited for quick, large, or international transfers despite the higher cost.

Streamline your accounts payable with ACH

In addition to being a great payment option for your customers, ACH transfers offer an efficient way to pay your bills. With Ramp’s accounts payable software, you can choose from a number of payment options including ACH or same-day ACH. Here are some of Ramp’s key features:

• Time-saving automation: Ramp’s accounts payable software significantly reduces the time spent on invoice processing by digitizing approval workflows and automating document matching. Our AI-powered tool streamlines the entire process, offering an average saving of 10 minutes per invoice.
• Efficient vendor setup: Our platform addresses common issues like incorrect bank information from vendors. Ramp provides a centralized system for vendor onboarding and bank account verification, minimizing errors and payment rejections.
• No processing fees: Ramp doesn’t impose any processing fees for domestic bill payments, helping your business save money on transaction costs.
• Versatile payment options: With Ramp, you can choose your preferred payment method, be it ACH, virtual credit cards, checks, or wire transfers, providing flexibility in managing different types of payments.
• Seamless integration: Ramp's accounts payable software integrates seamlessly with broader AP workflows, enhancing overall financial management efficiency.

Ramp's approach to ACH payments and accounts payable management offers a comprehensive solution that saves time, reduces errors, and cuts costs, making it a valuable tool for small businesses looking to optimize their financial operations.

Find out how Ramp can streamline your accounts payable process.