ACH — Automated Clearing House — Network transactions offer businesses a number of benefits. Not only do ACH payments often cost less than credit card or check transactions in terms of processing fees, collecting and sending payments is often faster than other methods.
Faster payments via electronic check can have a significant impact on your business’s finances, but if you don’t handle the electronic payment process correctly, what’s supposed to help keep your profits strong could end up costing you — big time.
Choosing the Wrong Payment Processor
The most important aspect of a compliant and efficient ACH process is selecting the right payment processor. With so many processors to choose from, it’s easy to make a mistake though. For example, many businesses choose their processor based on price alone, not paying close attention to policies regarding funds availability, tech support, and more. While going with the cheapest processor could save you money in the short term, if you cannot access funds in a timely manner, the outcome could be increased expenses or delays in other areas of the business.
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Perhaps the most vital consideration when choosing a provider for ACH payment processing, though, is security. Many small businesses in particular rely on their payment processor to manage key security considerations like PCI-DSS standards. Most payment processors are familiar with the standards and adhere to them, but not all manage every aspect as thoroughly as they could. You cannot assume that an ACH processor is compliant simply due to the nature of their business, particularly if you are accountable for industry specific security standards.
Failing to comply with PCI compliance standards could mean huge fees, fines, and other penalties for your business in the even of a breach, so take care to ensure that any payment processor you work with is fully compliant and can provide documentation of their security plans. It could save your business should something go wrong.
Not Managing Authorizations Properly
The cornerstone of any ACH transaction is authorization. Simply put, you cannot debit money from a customer’s account unless they give you permission to do so. You must keep your authorizations accessible and use the proper coding, so that your payment processor can review them as necessary. Without the proper authorizations, unauthorized or questionable transactions could result in substantial fines and other issues.
In addition to seeking the appropriate authorizations from customers, it’s also important that you — or your payment processor — have a thorough verification process in place to confirm payment details before any transactions take place.
Something as simple as transposed numbers in an account number can lead to returned transactions, and wasted time and money as you investigate the issue. Not to mention, such administrative errors contribute to your overall returned transaction rate, and even administrative returns count against you. Therefore, take the time to verify account information, payment details, and authorizations before processing transactions.
Not Following the Rules
ACH transactions are overseen by NACHA, a regulatory group that establishes the rules and requirements for the payment system. Most payment processors are well aware of the NACHA guidelines, but as with any regulatory agency, the rules can — and do change — often.
For example, NACHA recently released an amendment that changed the rules regarding returned transactions. In an attempt to curb unauthorized returns — returns based on transactions that were not authorized by the customer or had their authorization revoked — NACHA reduced the threshold for unauthorized transactions from 1 percent of the total number of transactions to .5 percent of transactions. According to NACHA, too many unauthorized transactions could indicate problematic business practices, and warrants investigation.
NACHA has also placed limits on the number of allowable returned transactions due to administrative or origination processes. In short, if more than 3 percent of your transactions are returned for administrative reasons, or more than 15 percent of your transactions overall are returned for any reason, NACHA will launch and inquiry. Again, excessive returns indicate a potential problem within the business, and could lead to fines and other consequences for your business, not to mention the impact that returned payments can have on your bottom line.
Problems with returned payments aren’t the only potential issues with ACH transactions, so it’s important for you and your payment processor to be well aware of rules and standards and take steps to ensure compliance. When choosing an ACH processor, look for one that allows you to view and manage your statistics on an ongoing basis, so you can identify potential problems and make changes before you cross the NACHA thresholds.
Not Communicating With Customers
Speaking of NACHA rules, payer communication is the foundation of any successful ACH program. A key aspect of any successful ACH program is customer authorization. You cannot debit a customer’s account for any amount without the proper authorizations, and you must notify the customer prior to any debit of the date you plan to initiate the transaction and how much you will be collecting. Without this communication, you run the risk of higher than allowable unauthorized transactions.
This is especially important if you make ACH transactions on a quarterly or annual basis. Your customers may have authorized the deductions, but without a reminder, they will see the transaction and dispute it with the bank. In such cases, the transaction will most likely go through eventually, but not before you’ve invested time and resources looking into the issue – and potentially faced inquiries from NACHA. Bottom line? Keep the lines of communication open (some experts recommend using text messages rather than email to ensure customers see the messages) and never surprise customers with an unexpected debit.
Managing your ACH payments properly and avoiding issues with communication, authorizations, and rule violations really comes down to selecting the right payment processer and working closely with that company to ensure that your payments are handled correctly and within the guidelines put forth by NACHA. Carefully review all of your options, and have serious and frank discussions about these issues before making a selection, and enjoy all of the benefits that come with electronic payment capabilities.