Month: January 2020

In this post, we’ll take a look at what ACH payments are and how your business can benefit from using this mode of payment.

 

What are ACH payments?

Automated Clearing House (ACH) payments are an electronic transfer of funds between banks. These payments are transferred through the United States ACH network, which connects thousands of financial institutions nationwide.

ACH transactions are secure, fast, and cost-effective. While there are other types of electronic transfers such as credit and debit card payments, they aren’t ACH transactions. In fact, ACH payments are specific to bank account transactions.

To complete a transaction, the entity requesting a payment needs access to bank account information from the other entity involved. For instance, let’s say you need to deposit money in your employee’s bank account. You’ll need to get their bank account information, which includes the employees’ bank name, type of bank account (savings or checking), recipient account’s number, and the bank’s ABA routing number.

This information is used to transact payments to the correct account. The same information will be required by the billers when making pre-authorized withdrawals from their bank account.

ACH payments are mostly electronic from beginning to end. However, some users convert paper checks to electronic payments and the money is transacted through the ACH system.

 

How do ACH payments work?

When a customer sends you a payment through ACH, the funds will show up in your bank account as a direct deposit. Here’s a brief explanation of how ACH transactions work:

Sending payments: To begin, a customer has to authorize the transfer of an ACH payment. Similar to signing a credit card receipt or a paper check, they are required to sign an ACH authorization form (or give verbal consent). The ACH system enables you to set up one-time payments, recurring payments, or a series of payments made on specific dates.

Receiving payments: After an ACH transaction is authorized by the bank, the agreed-upon payment is transferred from your customer’s bank account into your account. Payments are typically processed within 3 to 5 days, although sometimes it’s received on the same day. Similar to paper checks, if there are insufficient funds in your bank accounts, the ACH payment will simply “bounce”.

 

Benefits of ACH payments

Let’s look at the key benefits of ACH payments for businesses:

 

• Easier to track than check payments. ACH transactions are easier and faster to handle as compared to conventional payment methods such as check payments. As opposed to checks, ACH payments can be automatically set up, require less time to process (as checks have to be mailed), and cannot be lost.
• More cost-effective than credit cards. For organizations receiving payments via credit card transaction (which charge around 2% to 4% per transaction, plus setup and operational fees), ACH payments often cost less to process. This is especially useful for businesses that have to collect several recurring payments.
• Facilitates long-distance payments. Businesses can remotely receive ACH payments, just like credit cards. If a customer doesn’t want to give you their credit card information or don’t have one, ACH can be a great alternative.

 

Are ACH payments a type of EFT?

While ACH transactions are a type of Electronic Fund Transfer (EFT), ACH is specific to the United States, and each country uses their own domestic payments system. If you do not live within the U.S, you should check with your banking provider to learn more about how funds are transferred.

 

Conclusion

ACH payments are an easy, secure, and fast way to transfer funds between banks. They are more cost-effective than credit cards and also undergo a rigorous verification process before and during the transfer.

What payment options do you offer your customers? Let us know by commenting below.

To run a successful business, you need to keep your books up to date. That being said, entrepreneurs often struggle in this area, and risk falling behind when focusing on growing their small business.

But good news! There are some tried-and-tested tips that can help you stay on top of your company’s financial health and efficiently track your business’ transactions. In this article, we’ll go over some actionable tips to help you take control of your accounting responsibilities.

 

Tip #1: Keep it simple

As a small business owner, you should consider using cash-basis accounting. It’s a simple accounting method that’s used to track income and expenses.

In cash-basis accounting, you record transactions only after they’re completed, and make a record when you get paid or when you make payments. Ideally, transactions should be recorded on the day they occur.

 

Tip #2: Know which data points to record

Recording everything on a daily basis may seem tedious at first, but keeping a detailed record of your money transfers is necessary for reconciliation purposes.

Here are the main data points you need to record for incoming funds:

 

• Products or services sold
• Customers (or businesses) to whom you sell your products or services
• Amount received from customers (or businesses)
• Date when the payments were received

And here are the data points you need to record for outgoing funds:

 

• Taxes paid
• Paychecks and bonuses
• Business operating expenses (e.g. inventory, marketing, and equipment)
• Overhead expenses (e.g. rent, utilities, and legal fees).

There are several reasons why you must keep a detailed record of your company transactions. For starters, it can help you claim small business tax deductions depending on your income or the business structure.

Moreover, some received money may not be part of your revenue. For example, the sales tax you collect isn’t revenue. If you put all your money into a single account, it will be difficult to separate sales tax payments from your actual income.

 

Tip #3: Follow up on receivables

Sending an invoice to your customers doesn’t necessarily mean you’ll receive the payment on time. Good practice involves issuing invoices as soon as you deliver a product or service as it significantly increases the chances of timely payment.

Remember to follow up with vendors who owe you money as the payment deadline approaches. You can also offer early payment discounts to motivate your clients to pay on time!

Additionally, accepting online payments and using cloud-based accounting software can help you streamline your accounting tasks. With Ablii, you can simplify your business transactions. The platform helps you automate your accounting, track receivables, and get your money faster.

 

Tip #4: Create financial projections

Financial projections and reporting may take time, but they can help you estimate where your business will be in the next few years. This information puts you in a good position to make sound decisions regarding investments.

Financial forecasting can be complicated for some people as it involves figuring out the different ways expenses can change due to forces beyond your control – such as interest rates and inflation – as well as decisions made by your customers. The same goes for revenue since you need to take various factors into account, such as an increase in prices and how many new customers you acquire each year.

Consider starting with a profit and loss statement, which tells you how profitable your company is over a period of time. By analyzing it regularly, you will be able to get insight into which business areas you’re making money and which ones you’re losing money in.

 

Conclusion

Accounting for small business owners may seem complicated at first, however, it becomes a whole lot easier if you implement some simple tips to better understand your business’ financial health.

Do you regularly record your business transactions? Share your best money management tips in the comments section below.