Different companies will have different ways of approaching the way they handle payments and finances. Not every solution is ideal for the way a company works. For example, if you’re a business that works providing a product or service primarily to other business, that’s a completely different way of operating from a retail business. Retail businesses often benefit from having a payment system that is designed to handle numerous small payments, sometimes by cash or credit cards, throughout a business day. In some cases, during peak business hours, this may mean needing to handle a stream of transactions every few minutes!
But if your company works with other companies, that’s not how your revenue stream works. Instead of having someone come in every five minutes wanting to spend between $3-100, you may only have one big client that week that will end up owing you thousands, or even tens of thousands of dollars, by the time the product or service is rendered. If you’re in a situation like this, accepting a cash payment, while feasible, is hardly safe or frequent. Very few of your clients or customers are going to want to pay for a $30,000 service or product by handing over the cash, or even pulling out a debit or credit card, even if they have the means to pay the full amount.
The automated clearing house concept is the “next level” for a common form of traditional payment, the check. Of course, many retail businesses prefer to not accept checks when possible, and that is for one very simple reason; it is a delayed form of payment. With a check, there’s a certain level of trust involved, since checks must first be taken to a bank, deposited, and then eventually verified between the receiving bank and the issuing bank before the funds the check represents can be transferred over to the recipient of the check. If the funds written on the check aren’t available, the check “bounces,” which is to say the funds’ transfer is declined, and the person who provided the product or service has now effectively had that effort or product “stolen.” For someone that wants to buy a $5 shirt at a clothing store, this seems very impractical, and that’s why it makes sense in a retail setting to not accept checks, especially for smaller items. But the Automated Clearing House solution adds a bit more speed to this payment system. And it’s definitely a good idea in situations where there’s already an established relationship, a lot of trust between the business and the client/customer, and sizable, but infrequent exchanges of money going on. An ACH transaction is electronic, meaning it is verified, trackable, and easy to use for record/archive purposes. Like a check, an ACH transaction doesn’t go through immediately but waits for a specific time when “batches” of transactions go through, for more time/cost efficiency. Once the processing time arrives, the transaction goes through, and everything is cleared and recorded. It’s a safe, efficient system when you need to deal with larger payments!