ACH (Automated Clearing House) Payment

The automated clearing house has become a staple of modern-day commerce. In 2018, the U.S. Federal Reserve announced that ACH payments had finally surpassed the number of check payments. Is there any wonder? People can access their ACH funds almost immediately after receipt. In contrast, checks can take days to clear even when deposited electronically.

What Are Automated Clearing House (ACH) Payments?

An automated clearing house (ACH) is an electronic network that handles the direct deposit of payroll and other payments. When you set up an ACH payment, you provide your routing number and account number to the payer. The payer then initiates a debit from their bank account, which the ACH network processes. The funds typically arrive in your account within one or two business days.

These are some of the many other names used for ACH payments around the world:

Bankers authorized clearing system (BACS)
Electronic funds transfer (EFT)
Pre-authorized debit
Direct payments
Direct debit

What Are Automated Clearing House (ACH) Payments Instructions?

ACH payment instructions are the bank account details provided to the payer. The payer uses these instructions to initiate an ACH debit from their account. Fintech has now streamlined this process, so that, depending on the platform, payers might only need to use a third-party client to sign in to their bank accounts. The client then securely links the two accounts to ensure future transmission of payments.

Why Does Your Business Need Accounts Receivable Clearing House Provisions?

Should your business accept ACH payments? This is one of the top questions companies grapple with, especially older companies that have become comfortable accepting payments via cash or check. However, both of these traditional methods are rapidly losing their positions to direct deposits.

ACH payments are convenient for you and your customers or vendors. They’re also relatively inexpensive. Many banks don’t charge fees for ACH transfers. When they do, the costs are often lower than those for wire transfers.

Note that restricting customers’ payment options could reduce your likelihood of receiving on-time payments. The more friction in the payment process, the higher the probability that the accounts payable team might put off the task. Meanwhile, the company might pay other vendors and creditors ahead of your business.

ACH payments also make automated payments possible. For example, consider that you provide a flat-rate service or have customers who make the same order every month. Automated payments can cover their recurring bills with ease.

What Are Some Best Practices for Automated Clearing House (ACH) Payments?

Implementation and follow-up practices determine how well ACH payments benefit your company. Failure to put proper systems in place can lead to human errors, security weaknesses, and some of the same problems that plague cash payments. Consider the following best practices:

ACH Reference Systems: Create a system to keep track of ACH payments. Doing this will help you reconcile your accounts and ensure proper automated clearing house payment processing.
Multi-Factor Authorization: Don’t rely on a single method to authorize log-ins and payments. A good practice is to require two-factor authentication for all automated payments.
Vendor Authentication: Take steps to ensure your transactions are from the correct vendor. Confirmation is crucial for new or infrequent vendors.
Encryption: When dealing with sensitive financial information, data security moves up the list of priorities. Cybersecurity measures include encrypting any files that contain banking information.

At Gaviti, we make it easy for our clients to manage their accounts receivable process, regardless of the payment types they choose. We have, however, seen much more robust AR performance for clients that include ACH receivables in their strategy. Book your demo to see what ACH and our software can do for your business.