ACH or Paper Drafts?

Should my business use ACH processing or bank drafts? 

The decision whether to use ACH processing (electronically move money) or print paper drafts should be based on a number of factors. There are instances where ACH processing is the clear choice and there are other situations where a paper draft is the way to go. 

An overview of each and the pros and cons. 

ACH processing uses the Federal Reserve banking system to efficient and securely move money electronically. Typically a third party processor enable a business to use their front end tools like software or an Internet based Virtual Terminal to communicate instructions to debit or credit checking and savings accounts. The benefits include faster funds access, more timely notification of returned items (NSF checks etc) and the ability to recollect those NSF items electronically and reduced return item fees. 

Check drafting refers to the printing and depositing of a paper check with the customer name on it. The business may utilize their own bank or may use a third party who typically establishes a sub account at their bank. Depending on whether your bank is comfortable with processing unsigned checks you may get next day funds access or when dealing with a third party funding may take two weeks. 

Both options can come with advanced check verification features that enable account verification and funds availability checks at the POS.

Which should I choose and why?

If your business is relatively "low risk" then ACH processing is in all likelihood the better option. Per transaction costs coupled with return costs make the blended per transaction costs substantially lower. There are companies that sell check drafting software with good products who tell you "buy the software and print checks for free". What you don't hear is that check stock coupled with ink supplies and printer depreciation costs and potentially exorbitant return fees from their bank make those "free" checks anything but. Paper checks can take two weeks or more to come back to you as returns. This makes shipping phone or Internet orders problematic.

There are other concerns with printing drafts. There is currently a proposal being discussed among the banks to shift financial liability for charged back paper drafts to the banks cashing the check. This would likely cause a serious dent in the number of banks wiling to accept unsigned drafts. That or they will charge a pretty penny on chargebacks.

So when is printing drafts a good option? You might be surprised at my answer :)

Only when you can't get ACH processing!

You may be in one of a couple situations. You may be a telemarketer who can't obtain an ACH account because of past experiences the ACH processor has with telemarketing or NACHA rules prohibiting outbound processing.

The other instance would be that your business is brand new and an ACH processor needs some business history.

So from our unbiased perspective at ACH-Payments we suggest ACH processing. We can help you with your ACH and drafting needs-just contact us.

©2004 by Wayne Akey

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ABOUT THE AUTHOR:

Wayne Akey has helped numerous businesses

reduce costs and increase efficiency.

visit http://www.ach-payments.com for more

info and a free ebook on ACH processing

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 ** If you choose to use this article please be

kind enough to email me at info@ach-payments.com