ACH Payments 101 for B2B E-Commerce

6.8 billion payments in just a quarter, a 9% jump from last year. ACH is the new payment process widely used in the middle of this pandemic. Many business houses are counting this as a fundamental shift. The primary reason for this growth is the rise of B2B payments.

“The modern ACH Network serves the American people and businesses by delivering stimulus payments on time, and by enabling safe, remote electronic payments,” said Jane Larimer, Nacha President and CEO, said in a recent press release.

Today, businesses are reaping the benefits of Same Day ACH processing and can ensure a faster turnaround time to meet their buyers’ demands. However, before we explain why ACH should be on your radar, let us understand ACH a lot better how it works, what it is, how can someone start accepting it, and more.

1. What is the Automated Clearing House (ACH), and how does it work?
An automated clearinghouse is the main house that automatically processes bank to bank transactions in the United States. With the help of routing and account numbers, it clears the requests in batches. In each ACH transaction, we have an Originator (one who is paying), Receiver (one who is getting the funds), Originator’s Financial Institution, and Receiver’s Financial Institution. We can recognize each of these entities with unique Account and Routing Numbers.

2. How do ACH process transactions? How is it different than Wire transfers?

To have a clear view of the process, let us assume we have two different banks in a transaction. Both of them are under the ACH network.

Ten customers decided to send $2 from Bank A to Bank B ($20 in total), and five customers plan to send $5 ($25 in total) from Bank B to Bank A.

For wire transfers, someone will do these transactions individually, and you will have 15 trades in total. However, with ACH, you will have only $5 from Bank B to Bank A, i.e., a deficit between both amounts between two banks.

ACH reduces your overall costs and is excellent for non-mission, recurring payments. One can also cancel or dispute the transaction with ACH, contrary to Wire Transfers.

3. Why should you opt for ACH payment processing?

– Set and Forget
Let your customers just set up the mandate, and funds will get debited automatically as per the frequency decided. Your customers don’t have to again and again manually make the payments and meet the payment cycle.

– Better Security
The onus of deductions lies with the banks, thus making your customers protected in the event of payment errors. Your customers can expect a ‘no-questions-asked refund within eight weeks after the money has been debited or can demand a chargeback for up to 13 months post the settlement of funds. All this available in a click.

– Cost-Effective
You are generally charged anywhere between $10- $30 for sending a wire transfer, while ACH is usually free. Our platform charges a low fee for the same.

4. Why ACH payment processing is a must-have for online businesses?

– Reduce the scope of payment failures
A number of us often struggle to ask our customers to update their cards once it expires. One recent report highlighted over $40 Billion worth of transactions getting blocked every year due to cards expiring.

– Easy For Your Pocket
Third-party card transactions generally cost 3%, but we can reduce to 1% only with ACH. It is far more economical and reliable.

– Better Control & Clarity
With ACH, you can start ensuring that funds are available on a particular date. It can help you plan better and also ensure you are meeting the expectations of your buyers.

5. How to accept ACH payments?
You can start accepting ACH debits from your customers with the help of OrderCircle already integrated payment solutions. With the use of Stripe payment gateways, we will ensure you and your users have a seamless experience while processing the payments. Our end to end customer onboarding will guide you in following the most effective procedure for a better customer experience.

6. Why you shouldn’t directly interact with banks for the setup?
We see that you already authenticated the requestor in the ACH system, but the request wasn’t. In simple words, the ACH system operates in a way that the requestor or your ACH processor has to be a legitimate one. With processors, you can establish a well-known party for the same. Instead of relying on unknown individuals, you can depend on a third party processor who is known.

7. What are the various terminologies you must know about ACH?

Here are some of the most common rejection codes
– R01 – when the customer’s account has insufficient funds.
– R02 – when the customer’s (previously active) account is now closed.
– R03 – when the customer’s bank account number or the name associated with the account doesn’t match the bank’s records or the specified bank account doesn’t exist.
– R04 – when the account number isn’t valid or doesn’t contain the correct number of digits.
– R20 – when the customer’s account for which transactions are either prohibited or limited.

Apart from these, a bank may also decline a payment if the amount is higher than the pre-defined transaction limit set by the corresponding bank for ACH payments.

8. What is the best process to get started

To avoid any confusion and have a wonderful experience using ACH, here are some of the best practices used

– Start with a small-deposit – make a small test deposit to the customer’s bank account
– Double-check verification and amount – ensure you have a well-documented agreement about the ACH facility and get it filled from your customers to avoid any dispute.
– Set up an automatic notification- Ensure your users receive a message about the upcoming debit date well in advance to ensure sufficient funds.

“With wholesalers across the globe looking to go beyond their local boundaries, finding the right partner for the navigating between traditional infrastructure is imperative. At OrderCircle, we have invested significantly to ensure our customers are always ahead of their peers. By spending less than an hour a day, one can reconcile all his transactions with us.”
-Zahi Darwazeh- CEO, OrderCircle

At OrderCircle, we have built a smarter workflow to ensure faster payment processing and reduced wait time; if you wish to know more, book a demo today.

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