Automated Clearinghouse (ACH) transactions and benefits remain largely unknown and misunderstood for most consumers and businesses. The misunderstanding stems from the fact that the ACH has multiple uses and applications. It can be both a credit and debit transaction. It can be used by both consumers and businesses to pay an obligation (ACH credit transaction). Or, it can be used to receive payment by using an ACH debit instruction.
What is ACH?
The ACH, and the association that set its rules and enforces compliance-The National Association of Automated Clearinghouse (NACHA)- was formed more than 30 years ago as a replacement for the paper check.
Direct deposit of payroll was one of its first payment types and is still one of the most popular (now considered a native ACH payment) types of ACH transactions due to the ease, convenience and safety provided to both employers and employees.
As time marched on, businesses, governments and consumers increasingly embraced ACH payments because they are cost-effective, reliable and efficient to initiate and receive. Federal, state and local authorities’ use of the ACH is evidence of its ever-growing popularity to collect taxes and remit refunds. Online bill payments are predominately accomplished using the ACH network. Consumer-oriented businesses (e.g., credit card and mortgage companies) use the ACH to convert checks to settle consumer debts. Retailers, such as Wal-mart, convert checks written at the point-of-sale to the ACH, often surprising consumers when the cashier actually hands back their voided check.
How can small businesses benefit by using the ACH?
The simplest thing to do is to use direct deposit of payroll to pay employees, be it one employee or more. An abundance of companies exist to service the direct deposit needs of small businesses. Their services include calculating and filing all the tax and withholding obligations associated with payroll. ADP, PayChex and Intuit come to mind first, but there are others.
Accounting software providers, such as Peachtree and QuickBooks, also offer direct deposit of payroll. Often their direct deposit service is an add-on to the basic accounting package or requires use of a premium version (at an additional cost).
Financial institutions also offer direct deposit of payroll that automatically link to accounting software and provide the same electronic payroll services as an ADP or PayChex, often at a reduced cost. Banks also offer other ACH services. Ask your bank if they have an online bill payment tool for small businesses to use the ACH to pay vendors and other obligors electronically. It’s easy to use and, again, integrates with common accounting software packages.
Most online bill payment providers make their services accessible via the mobile phone, in addition to the PC, so it is getting even easier and more convenient to pay bills and employees every day. Intuit, for example, recently announced a mobile app for small businesses.
Make the management of your business simpler by using the ACH payment system. Eliminate the time spent on calculating what is owed to employees and vendors by leveraging the tried and true, safe and sound ACH payment tools available to small businesses today. Then focus on what is really important: making your business successful.