Nowadays, businesses have more options than ever when it comes to receiving payments from their customers. You can say goodbye to waiting around for a check to come in the mail. One of the best payment methods today is an automated clearing house (ACH) payment. Continue reading to learn everything you need to know about business-to-business ACH.
What are ACH payments?
Before we get too deep into ACH business transactions, it’s helpful to start with the basics of ACH payments and how they work.
An ACH payment uses a computer-based network for processing transactions between participating banks, credit unions, or other financial institutions. These ACH transactions can be credit transfers or direct debits—ACH credits transfer funds to the recipient, and ACH debits request the removal of funds from one account to another. The ACH system processes batches of payments with numerous transactions and charges a low fee for each batch.
We’ll get more into the details about the benefits of the ACH system later, but they’re a fantastic option when you’re sending relatively small payments to a company or another individual.
How does ACH for businesses work?
Business-to-business ACH is just what it sounds like: payments made via ACH between two businesses. ACH for businesses is great for setting up recurring payments, like rent or any other monthly bills.
All you need to do to get set up with a business ACH is set up a business bank account with a financial institution that provides ACH payment options. These days, that’s most banks and credit unions, but you’ll want to double-check that ACH is an option with your bank before starting an account.
With your business ACH set up, your business can start making payments right away without using a debit card or messing with a wire transfer. Additionally, you may be able to accept payments from clients via ACH.
What kinds of businesses accept ACH payments?
While pretty much any business can set up an ACH account at their bank or credit union, this service is a better fit for some businesses and industries than others. Here are a few of the types of businesses that are the best fit for the ACH system:
- Subscription-based services: ACH payments are a great option compared to credit cards if your business model involves collecting monthly payments from customers. The low processing fees involved with ACH payments don’t hurt your budget, and ACH payments don’t frustrate clients if they miss a payment due to an outdated credit card.
- Rent: We already mentioned that this ACH debit is a great option for paying rent, but it’s also a fantastic option for collecting rent. Since there’s no need for your tenants to send rent checks, ACH payments are safer and faster.
- Services and invoices: Construction companies or other businesses that send out high-dollar invoices should also consider collecting ACH payments. Clients will appreciate that they don’t have to write large checks or worry about their checks getting lost in the mail. Instead, their ACH payment comes right out of their bank account and is deposited into yours.
Benefits of business-to-business ACH
If your business falls into one of the categories mentioned above, you should definitely consider collecting payments via ACH. But if you’re still undecided on whether ACH is right for your company, consider these benefits of business-to-business ACH:
- No processing fees: Business owners’ ears often perk up when they hear there are ways they can save money each month. Sending and receiving money over the ACH system helps save big bucks because there typically aren’t any processing fees involved with the transactions.
- Low transaction fees: The one fee you may have to pay when working on the ACH system is the transaction fee. However, this fee is much cheaper than what you’d pay for a wire transfer. Depending on which bank or credit union you use, you may not even have to pay a transaction fee.
- Security: Having your check get lost or stolen in the mail is something we hope you never have to deal with—and if you start conducting all of your business over the ACH system, you never will! Because all the funds are sent electronically, there’s no risk of any money getting lost or stolen.
- Ease of use: The only way to top a secure and affordable payment system is by finding one that’s easy to use—and that’s just what you get with the ACH system. Business-to-business ACH only requires having a client’s bank account number and routing number on file to send or receive funds.
Drawbacks of business-to-business ACH
ACH business transactions might not be right for everyone, and that’s okay. Wire transfers or sending and collecting checks are still perfectly fine payment options. Here are a few reasons why a business owner might not prefer ACH payments to other options:
- Slower processing time: When comparing ACH vs. wire transfers, ACH payments process within a day or two. Although that’s still really fast and convenient, these transactions are slower than wire transfers, which are settled at the end of each business day.
- Fees may still exist: Unless you’re working with a bank that doesn’t charge the transaction fees mentioned above, you may still have to pay a few bucks for each payment sent through the ACH system. The good news is that the fees are usually lower than what you’d pay for a wire transfer or going through a system like PayPal.
- Limited international application: The ACH system is U.S.-centric, so it’s not great for companies that work with businesses based abroad. Fortunately, the ACH system is expanding to include countries in Europe and Asia, although your options may still be limited.
Start accepting business-to-business ACH debits today
Talk to the team at NorthOne if business-to-business ACH sounds like it’s right for your company. Our goal is to make small business banking as easy as possible, which means allowing our customers to send ACH payments on their phones from anywhere in the world. Open your account today in just a few minutes and see how much better life can be as a NorthOne customer.