ACH and Online Payment Processing

ACH or an Automated Clearing House is an electronic network for financial transactions in the United States. An ACH processor processes large volumes of credit and debit transactions in batches. Apart from direct deposits, payroll payments, insurance premiums and mortgage loans, ACH transactions also includes Point of Purchase (PoP) check conversion transactions.

ACH transactions were mainly used by the government and commercial sectors previously, but now businesses are increasingly beginning to use ACH transactions online to facilitate customer payments, rather than payments being made by credit or debit card.

Why are businesses turning to ACH?

Businesses are introducing ACH payments to offer their customers a broader range of payment options. An ACH is a computer-based clearing facility between depository institutions.

By utilizing ACH transactions, businesses can accept payments similar to an Electronic Funds Transfer (EFT) or check payment. The payment differs from both of the aforementioned by giving control of the payment to the business as opposed to the customer.

If a customer writes out a check, the business has to wait for up to seven working days before they can be assured that it is not a bad-check that will be returned as ‘unpaid’. Likewise, if a customer commits to paying by EFT, the business has to wait until the customer takes action. By using an ACH transaction the business needs only to obtain the customer’s consent (written or oral) to initiate a process to withdraw finds from the customer’s account, at which point there is little chance of the transaction being reversed.

Rules and regulations that govern the ACH network

The ACH network is regulated by the National Automated Clearinghouse Association (NACHA) which is a non-profit membership association. NACHA, in conjunction with the Federal Reserve, introduces and implements rules and regulations that apply to the ACH network.

NACHA rules aim to ensure efficient ACH payments, strengthen risk management, lessen returns and limit exceptions. Businesses utilizing ACH transactions are encouraged to understand the NACHA rules, not only keep abreast with changes but also to identify opportunities to leverage the ACH network to meet their individual business needs.The rules can be viewed online on the NACHA website.

The NACHA rules are a ‘living-document’ and NACHA depends on user input when amending and updating them. The rules are a deliberative and inclusive process that under the Administrative Procedures Act allows ACH participants such as banks, credit unions, businesses, consumer advocates and government organizations to comment on proposed rule changes. The rules work in concert with applicable laws and regulations, providing a legal and business foundation for using ACH payments.

For more information about how ACH affects online payment processing or to sign up for a merchant account, please call (888) 924-2743 or go to Charge.com