How to Receive ACH Payments for Your Business

Automated Clearing House (ACH) payments are electronic funds transfers between U.S. bank accounts. This system facilitates secure money movement, serving as a digital alternative to paper checks. Businesses and individuals use ACH for its reliability, especially for recurring transactions, enhancing operational efficiency and reducing costs. Digital transfers often process faster than checks and incur lower transaction fees than credit cards. This system supports direct deposits and bill payments.

Setting Up to Receive ACH Payments

Receiving ACH payments begins with a suitable business bank account. A standard business checking account is sufficient, as most U.S. banks and credit unions are part of the ACH network. This connects your business to the financial system for electronic transfers.

Next, select an ACH payment processor or gateway. This acts as an intermediary between your business and the ACH network. Providers include dedicated payment processors, integrated accounting software, or direct bank services. Companies like Stripe, GoCardless, Dharma, and Stax are examples of third-party processors that facilitate these transactions.

When choosing a provider, consider transaction fees, setup costs, security, integration with existing systems, and customer support. Transaction fees can range from a flat rate of $0.20 to $1.50 per transaction or a percentage between 0.5% and 1.5% of the transaction amount. Some processors may also charge monthly fees, ranging from $5 to $30. Businesses with high transaction volumes may be able to negotiate lower rates.

Signing up with a processor requires detailed business information. This includes your certificate of incorporation, federal tax identification number, proof of company address, and valid identification for owners. You also provide your business’s bank account details and an estimated processing volume. Completing these forms establishes the connection for receiving payments.

To initiate an ACH payment, collect specific banking information from customers. This includes their bank account number, routing number, the name on the account, and the account type (checking or savings). Obtaining proper authorization from the payer is required under Nacha Operating Rules, safeguarding against unauthorized transactions.

Authorization can be obtained through written forms, electronic agreements, or recorded verbal consent. The authorization must state the payer’s personal information, bank account details, payment amount (or maximum for variable payments), payment frequency, and payee’s details. Instructions on how the payer can revoke authorization should also be provided. Nacha rules require businesses to retain a copy of this authorization for at least two years after the last authorized payment.

The ACH Payment Flow

Once setup is complete, the ACH payment flow describes the sequence of money movement. The process begins when the business or its payment processor initiates an ACH debit request using collected bank information and payer authorization. This request signals the start of the electronic transfer.

Payment requests are grouped into batches by the Originating Depository Financial Institution (ODFI). These batches are submitted to the ACH network at specific intervals. Different banks may have varying cutoff times for submitting these files, which can influence processing speed.

The ACH network, managed by Nacha and operated by entities like FedACH and The Clearing House’s EPN, processes these batches. The network routes each transaction to the Receiving Depository Financial Institution (RDFI). This centralized processing ensures that funds are directed to the appropriate accounts.

Upon receiving the transaction file, the payer’s bank (RDFI) processes the request by debiting the payer’s account. This action moves the funds out of the payer’s account and into the ACH system for transfer. The system is designed to verify account information and ensure funds are available before completing the transaction.

The final stage is settlement, where funds transfer from the payer’s bank to the receiver’s bank. Standard ACH transfers settle within one to three business days. Approximately 80% of ACH network volume settles in one banking day or less, partly due to Same Day ACH processing. However, transactions initiated on weekends or holidays will not begin processing until the next business day, extending the overall timeline. Once settled, the receiver is notified of the successful payment through their processor’s dashboard or bank statement.

Common Aspects of Receiving ACH Payments

Receiving ACH payments involves understanding operational aspects beyond setup and transaction flow. Transaction fees are assessed per transaction. Some providers also levy monthly service charges or batch fees.

ACH returns and reversals are infrequent but important. Common reasons for a payment return include insufficient funds (R01), a closed account (R02), an incorrect account number (R03, R04), or an unauthorized transaction (R07, R10). When a return occurs, a fee between $2 and $5 may be charged. Reversals or chargebacks, often due to disputed transactions, can incur higher fees, ranging from $5 to $25. Nacha guidelines suggest that businesses maintain their overall ACH return rates below 15%.

Payment timing and settlement are important. While standard ACH payments settle in one to three business days, same-day ACH options are available for an additional fee, offering faster fund availability. Businesses should account for these processing times, especially when managing cash flow or scheduling payments, as they differ from instant payment methods.

Maintaining accurate records of received ACH payments is important for accounting and tax compliance. This includes reconciling payments with bank statements to ensure funds are correctly attributed and recorded. Proper record-keeping helps in tracking revenue, managing outstanding invoices, and preparing financial reports.

Handling sensitive bank account information requires robust security measures. ACH processors implement data encryption and other safeguards to protect this financial data. Adherence to Nacha rules, which mandate secure transmission and storage of sensitive information, minimizes fraud risks.