By Vannessa Guevara February 25, 2019
Automated clearing house (ACH) is a Web-based payment clearing system that handles financial transactions. The system handles the exchange of money between customers, lenders, banks, utility companies and other institutions. When someone buys a product or service online, the payment is sent through the ACH system and cleared. Learn more about how these payments work.
The Payments
The clearinghouse system handles low-cost, non-urgent payments made in bulk. Schools, restaurants, stores and small businesses handle many daily transactions that include debit or credit card processing. However, transfers that are made through automated clearing houses have lower risks of fraud.
The system reduces fraud by ensuring that the money is available and withdrawn from the account before the sales are completed. The payments are not verified instantly and work more slowly than credit card processing. It takes two or three days to clear, but the process is safer and more reliable. The process is more affordable with none of the fees that are charged by credit card companies.
The Process
First, the customer buys a product or service online. The bank verifies that the funds are available in the customer’s account and then sends the transactions in batches to the clearinghouse. The transactions are either sent at the end of the day or in multiple cycles throughout the day. The clearinghouse ensures that the payments are transferred and cleared.
The banks complete the transactions by crediting or debiting payments from their customers’ accounts. A credit is a transaction like a direct deposit that is initiated automatically on payday. A debit, such as online bill payment, is withdrawn automatically from the account.
People add more benefits to their businesses when they accept ACH processing. There are zero transaction fees, so they keep all of their profits. They can provide more payment options to online customers, especially ones who cannot pay with credit cards or cash, which increases their sales and cash flow. In addition, the tools to set up the system are free and based online. There are numerous benefits of using the automated clearing house system that customers and professionals should consider.