Accepting ACH & eCheck Payments: A Guide for Small Businesses

WHY YOU’RE READING THIS

We know that ACH and eCheck payments can be confusing, especially if it’s your first time trying to figure out how they work. This guide will get you up to speed so you can start enjoying all the benefits that fast, flexible, and cost-effective ACH and eCheck payments can bring to your business!

Here’s everything you need to know about ACH and eCheck payments, from what they are to how to set them up.

What is an ACH Payment?

An ACH payment is any electronic payment that’s sent from one bank to another via the ACH (Automated Clearing House) network. This transaction is called an EFT, or electronic funds transfer.

Put simply, ACH payments let your customers transfer money directly from their bank account into yours. Often they’ll do this with an eCheck, which is a type of transaction that uses the ACH network. (Other ACH transactions include direct deposits, wire transfers, electronic benefits payments, and ACH disbursements.)

At this point, you may be thinking that an ACH payment seems a lot like a debit card payment, but these are actually two very different transactions. Not only do they have different processing times and transaction fees, but they’re processed through different merchant accounts and providers, and have their own chargeback and dispute resolution policies.

What is an eCheck?

An eCheck is an electronic check. It works just like an old-fashioned check, except that the money is transferred between accounts electronically. eChecks use the ACH network to move funds from one account to another. You’ll often see the term “eCheck” and “ACH payment” used interchangeably.

Here’s how eChecks, or ACH payments, work:

1. A payer authorizes a certain amount of money to be withdrawn from their account.
2. The money travels electronically over the ACH network. It is transferred from the payer’s financial institution to the payee’s financial institution.
3. The money is then deposited into the payee’s bank account.

It’s important to note that just like regular checks, eChecks can still ‘bounce’ if a person doesn’t have sufficient funds in their account. That’s because when an ACH payment is initialized, the system verifies whether the payer’s bank account exists, but not whether there’s enough money in it. You can protect against bad eChecks by setting up check verification or check guarantee services, but these often carry a higher per-transaction charge.

What Are the Benefits of ACH & eCheck Payments?

There are a number of reasons so many businesses are interested in accepting ACH & eCheck payments:

They’re cost-effective. eChecks come with much smaller fees than credit cards. For example, if a customer pays you $500 with an eCheck, you might expect to incur a flat $0.60 fee. But if they pay that same amount with a credit card, your fee might creep closer to $9.60! (Rates vary, but for this example we’re assuming a 1.9% rate x $500 + $0.10 transaction fee = $9.60).

They’re fast and convenient. Electronic check processing is faster than paper check processing, and the funds typically reach your account in 3-5 days. Although credit card payments can take 2-3 days to process, banks have been known to delay credit card funds for days or weeks at a time due to non-payment issues. That’s not the case with eChecks.

For more on ACH & eCheck funding time, check out this article.

They’re great for recurring payments. eChecks are one of the most popular ways to make recurring payments. They help you create reliable revenue, and you can just set them and forget them! If your customer has authorized a billing schedule, you can use PaySimple to invoice them automatically.

They provide an extra layer of protection against fraud. When a customer disputes a credit card charge, they can simply claim that the product or service received wasn’t what they had expected. But there are only three acceptable reasons for disputing an ACH charge:

1. It was never authorized by the account holder;
2. It was processed earlier than authorized; and/or
3. It was processed for a different amount than authorized.

To dispute a transaction, the customer must cite one of these three reasons in a written notice to the bank.

How Can I Accept ACH & eCheck Payments?

Here are the steps for accepting eCheck payments:

Set up an ACH merchant account. A merchant account lets you use the ACH network to withdraw payments directly from customers’ bank accounts. To open a merchant account, you’ll need to provide the following information: federal tax ID, the number of years you’ve been in business, and your estimated processing volume. Note that it can take a few days to be approved.

Request authorization from your customers. ACH billing requires authorization. Just as a customer must authorize you to cash a paper check by signing it, they must also authorize you to make an ACH (eCheck) withdrawal. They can do this by signing a contract or order form or by submitting an online payment form.

Download free authorization form templates.

Set up the payment details. The customer can submit an online payment form with their checking account and routing number, as well as the payment amount and whether it’s a one-time or recurring payment.

Submit the payment information. When you click “save” or “submit” in your payment processing software, it will start the ACH transaction.

How Long Does it Take to Receive an ACH (eCheck) Payment?

ACH payments are deposited into your bank account within 3-5 business days. This is because it takes three business days for transactions to be verified. So, for example, if an ACH transaction is initiated on a Monday, it will be processed on Tuesday and Wednesday, settle on Thursday, and reach your bank account by Friday.

For more on ACH & eCheck funding time, check out this article.

WHAT IF I NEED TO VOID OR REFUND AN ACH (ECHECK) PAYMENT?

ACH batches close at 5 PM EST, so any payments initiated after that time will be included in the next day’s batch of deposits. If you need to cancel a payment, you can do so before 5 PM that same day by selecting ‘Void’ in PaySimple. If you miss this window, you’ll have to wait for the payment to settle and then refund it by selecting ‘Refund.’ Note that you’ll only see the ‘Void’ and ‘Refund’ options when they’re available for use.

What Do I Need to Know About Security?

The National Automated Clearing House Association (NACHA) oversees ACH security requirements and compels businesses to take steps to protect their customers and themselves. It’s important to choose a payment processing partner that keeps your business and your customers safe.

PAYSIMPLE IS COMPLIANT WITH ALL ACH SECURITY RULES, INCLUDING:

Securing protected information. This includes sensitive information like financial accounts, social security numbers, driver’s license numbers, and other personal information customers provide.

Securing transmission. PaySimple uses the most current security protocols and 256-bit encryption for storing and transmitting bank account and credit card information.

Validating routing numbers. To prevent fraudulent transactions and errors, NACHA requires us to take “commercially reasonable” steps to check that routing numbers are accurate.

Verifying identity. NACHA requires merchants to verify customers’ identities prior to processing a transaction. This is important because phone or online ACH transactions only require a name, address, routing number, and account number—and these are readily available on any paper check.

Detecting fraud. NACHA requires merchants to flag any fraudulent transactions before they’re submitted into the ACH network for processing.

WHILE PAYSIMPLE DOES EVERYTHING POSSIBLE TO ENSURE YOUR AND YOUR CUSTOMERS’ SECURITY, YOU ALSO NEED TO BE PROACTIVE ABOUT SECURING SENSITIVE DATA. THIS MEANS:

Having a written security policy. NACHA rules require you to have a written security policy that protects the confidentiality and integrity of sensitive information, guards against potential security threats and hazards, and protects against unauthorized use of that information. This sample security policy should serve as a good starting point.

Using encryption and securing paper documents. Encrypt any electronic storage that contains bank account numbers and routing numbers. If you maintain paper documents with sensitive customer data, keep them in a secure place like a locked file drawer when they’re not in use.

Allowing employee access to customer records only when needed. Your employees should have access to protected customer information only if it’s required for a legitimate business need.

WHAT’S NEXT?

We hope you’ve enjoyed this simple but smart guide to ACH payments. If you’re ready to start accepting ACH & eCheck payments from your customers, we’d be happy to help get you set up. Please follow the link to learn more about PaySimple Merchant Accounts and how you can get started with one of your own!