June 30, 2022

An electronic transaction must be run through an Automated Clearing House (ACH) before any funds can be deposited to an account. The clearing house performs verification and account processing for funds transfer. A business cannot provide electronic payment services to customers unless ACH processing or another verification method is in place. The Federal Reserve System is used to perform the actual transfer and multiple banks participate in this communication system to provide electronic services to their customers. Specific regulations are in place to monitor this form of processing. This transaction handling method provides a beneficial solution for removing the large amount of work required for written checks. ACH makes it easy for any business to receive recurring payments or transfer funds. Common uses include payroll, bill pay, and business expense transfers. Processing averages between two and three days for each electronic payment.

Credit Card Merchant Account: The Backbone of Payment Processing

A credit card merchant account is necessary to accept any form of electronic payment and setup of such an account will vary depending on the type of transactions as well as the acceptance method. Independent brokers or financial institutions can provide this service for businesses. An account makes it possible to accept credit, debit, and ACH payments. It is normally tied to the company name as well as tax identification number. Anyone owning more than one business will need to apply for separate accounts. Equipment can however run transactions for more than one account. A business may have multiple credit card merchant accounts and still run the transactions through a single piece of equipment as long as the purchased gateway will support this capability.

Obtaining an account is the first step any business must take to accept or perform ACH transactions. A business submits an application to the selected provider. Access to the terminal or gateway is provided upon approval of the application. Gateways are designed to accept data pertaining to the sale such as the purchase total, card information, and voided payment information. The account provider relays all required information to a credit card network or clearing house depending on the type of transaction. Credit payments are process through a specific network while ACH transfers get sent to a clearing house. Providers offer additional services outside of basic processing. Offered services vary by provider as well as fees charged for each service.

Authorization must be received by the consumer to process an ACH transaction. It may be in the form of verbal, written, or electronic approval. An entry is sent to the business financial institution and then passed to the customers banking facility. The clearing house performs verification before funds are deposited into the company account. Many additional steps may be involved with this process before the deposit occurs. Factors such as rejected transactions due to insufficient funds or lack of authorization can increase the steps required to complete the process. Credit is processed in much the same way but through a different network. Their processing time is far less than that of ACH processing. Both can be beneficial to any company wanting to begin offering additional payment options to consumers.