What is Automated ACH?

Moving money is a critical piece of a business’s payment operations. From startups to large corporations, every business can benefit from streamlined payment processing.

Modern, automated payment operations unlock the full potential of payments by eliminating the need for traditional paper checks, manual processes and the hidden costs that come with them. Through the power of ACH and an updated payments platform, businesses can improve cash flow, account reconciliation and even profitability.

What are ACH payments, and how do they work?

ACH stands for the Automated Clearing House Network, which manages billions of electronic transactions yearly throughout its network of US financial institutions, supporting both ACH credit and debit payments. The National Automated Clearing House Association (Nacha) governs this network, setting its rules and regulations.

An ACH payment is an electronic transaction between two bank accounts that typically takes one to five business days to complete. ACH payments are used for various purposes, such as payroll direct deposits, bills and vendor and supplier transactions, and in some ways offer a higher level of security compared to traditional checks. For those needing faster processing, Same Day ACH allows a credit or a debit to settle within the same business day. It’s important to understand that while ACH transactions are faster than mailing a check, they are not instantaneous, even if they’re automated—no such thing as instant ACH exists.

Under the ACH umbrella, bank-to-bank transfers are processed reliably via the ACH Network. The ACH network keeps track of all the transactions happening between banks throughout the day. This ensures funds go exactly where they should go and keeps everything organized.

What are the different types of ACH payments?

The ACH Network supports various payment types for different scenarios, but the most common categories are credits and debits. Below, we’ll break down the specifics of these two payment types.

ACH credit transactions, also known as push transactions, are the process of electronically sending money to a bank account. An example is an employer depositing a paycheck directly into an employee’s bank account— funds are being pushed into the account.

ACH debit transactions, also known as pull transactions, withdraw funds from a bank account and deliver them to another bank account. This method is commonly used for recurring payments that can be automated for timely and efficient transactions. An example is a lender automatically withdrawing monthly car loan payments from a borrower’s bank account.
Both transaction types are entered into the ACH payments system by an originator responsible for obtaining the required authorization for each transaction.

ACH Transfer Speeds

Businesses can choose from several different ACH transfer speeds to find the balance between speed and cost for their use case.

With a Standard ACH transaction, it can take up to 3-5 banking days after a transfer is initiated for the funds to be available to the recipient. For those who need faster speeds, Next Day ACH (exclusively through Dwolla) makes funds available the next business day for debit transactions, while Same Day ACH allows a credit to or debit from a bank account to settle within the same business day.
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What are the hidden costs of manual payments?

Manual payments take a toll on your payment operations and, ultimately, the success of your business. However, since some of these costs aren’t evident in the bottom line, businesses often aren’t aware of their impact until it’s too late to take preventative measures.

The top six hidden costs your business could be facing because of manual payments are:

#1 Slow Processing

Manual payment operations often involve physical documents and manual data entry, leading to slower processing times compared to automated systems. This can delay initiating, approving and completing payment transactions. Slowdowns in accounts receivable can lead to inadequate cash flow and working capital constraints. Slow processing of accounts payable can strain vendor relationships and eventually create supply chain issues. Any payment processing slowdown can be detrimental to customer experience.

#2 Errors

Human errors also contribute to a slow payment cycle and increased costs. The more manual steps involved in a transaction, the more likely someone on your team will make a mistake. Plus, data entry and matching can be tedious and time-consuming, leading to longer processing times, higher labor costs and more mistakes. Payment processing typically has a 10% error margin, and correcting those errors requires exception handling processes and approvals. All of these rework steps take time, and at scale this time costs a lot of money.

#3 Failed Payments

Payment failure can occur for many reasons, including:

• Expired credit cards
• Incorrect payment details
• Insufficient funds
• Fraud detection

Manual payment processes exacerbate the impact of these issues, especially if multiple platforms are involved and they don’t communicate with each other. Invoicing might be separate from approvals, which might be separate from payment initiation. The person interacting with these multiple systems likely won’t catch the issue until the middle of the payment process. At that point, time and effort has been wasted on the failed payment, and the person trying to process it will have to devote even more time to figuring out what the issue is, solving it and reprocessing the payment.

#4 Direct and Indirect Costs

Processing payments manually can result in direct expenses, including:

• Supplies: Paper, envelopes, ink and postage add up over time.
• Wages: Employees must spend time printing invoices, preparing checks and mailing payments. Most transactions are easy to execute, but manually matching the invoice number, issuing a purchase order after invoice approval and collecting signatures can be tedious and time-consuming.

Additionally, consider the indirect costs of manual payments, such as:

• Time: The time spent on manual payments could be applied to other areas of payment operations, like finding ways to increase efficiency and productivity.
• Opportunity: Companies that use manual payments may lose out on business and strategic partnerships or other opportunities to grow their business, knowing their current manual processes can’t handle increased volumes.
• Reputation: While you can track the amount of time it takes to correct mistakes and the related costs, many companies neglect to track the negative reputational impacts. Painful manual processes and common incidences of payment errors can contribute to negative public opinion and bad reviews.

#5 Employee and Customer Churn

The constant grind of managing manual payments can get old for your employees, sometimes resulting in voluntary churn from your team. Manual payments can also take 6-10 days to process, affecting business cash flow and leading to churn from your customers. Automating your payment operations reduces the number of repetitive tasks left for employees, streamlines the process to save more time and effort, and speeds up the payment process to increase cash flow and customer satisfaction.

#6 Inadequate Payment Security

The vulnerability to fraud is higher in manual payments because manual data entry and paper create more opportunities to tamper with payments and the limited audit trail makes it harder to trace. Without real-time monitoring and automated fraud detection mechanisms, businesses are more exposed to fraudulent activities that may remain undetected for extended periods. Lack of timely intervention can lead to substantial losses and compromise the security of payment systems.

Furthermore, manual payment operations often involve the use of physical documents like paper checks or invoices. Documents can be lost, mishandled or accessed by unauthorized individuals, increasing the likelihood of data breaches and compromising payment security.

What is automated ACH?

Automated ACH leverages software and technology to automate the initiation, processing, and management of ACH payments, enabling businesses to streamline and secure their financial operations. ACH, or Automated Clearing House, is a network that facilitates electronic funds transfers between bank accounts in the U.S.. Common uses of ACH include direct deposit of payroll, bill payments, and business-to-business transactions.

Automating ACH payments offers numerous advantages, including the elimination of manual processes such as paper checks and legacy ACH files. Businesses can integrate with payment APIs to connect their systems with the ACH network. This allows them to automate tasks such as creating and submitting ACH files, verifying bank account information, initiating transactions, and reconciling payments. Some payment APIs offer real-time transaction processing and status updates, providing enhanced visibility and control over cash flow. Automated ACH, particularly when implemented through reputable payment API providers, can enhance security through features like tokenization and encryption. These benefits ultimately lead to improved efficiency, cost savings, faster payment cycles, and reduced administrative burdens.

What are the benefits of automated ACH?

ACH payments have grown significantly in popularity—and for good reason. Automated ACH through a payments API can solve many of the pain points in a business’s payment operations when they use:

• Paper checks
• Credit card processing
• Manual ACH files

If a business is primarily processing checks, using ACH payment automation can offer these benefits.

 

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If a business is primarily processing credit cards, using ACH payment automation can offer these benefits.

 

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If a business is primarily processing file-based ACH, using ACH payment automation can offer these benefits:

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What is an ACH API?

An ACH API is software intermediary that allows businesses to connect their systems to the ACH network. This network facilitates electronic funds transfers between bank accounts. Through an ACH API, businesses can automate processes like sending or receiving payments, verifying bank accounts, and reconciling bank records. Payments APIs typically offer a variety of features, such as mass payments where businesses can initiate multiple bank transfers with a single API request, as well as webhooks, which provide real-time notifications for transactions. ACH APIs provide businesses with greater efficiency, security, and control over their payment processes.

How does an API enable ACH automation?

The world of automated ACH payments offers a wealth of benefits, and an ACH API is the bridge that connects businesses to the ACH Network for automated transactions. ACH APIs enable a streamlined payments experience by allowing businesses to automate their manual and repetitive payments processes, including data entry and verification, confirmation and reconciliation of payments. Businesses don’t have to stress over paper checks, credit card processing or manual ACH processes. Automation using ACH APIs reduces the risk of errors and cuts down on costs associated with manual labor, leading to more payment efficiency and more time for your business to focus on what’s important.

“…I think ACH in general makes sense so investment returns aren’t impacted by high transaction fees. And once you decide to go with ACH, Dwolla was really the only game in town.” – CEO of investment platform.

More and more consumers expect a digital payments experience and businesses that fail to adapt risk falling behind. Integrating with an ACH API is a simple yet powerful solution that can help businesses stay ahead of the curve.

• Payroll processing: Automating payments for a more streamlined experience, eliminating manual errors and saving time.
• Marketplace payments: Streamline the transfer of funds between multiple parties and reduce the risk of fraud.
• B2B Payments: Businesses can transfer funds between accounts electronically, reducing the need for paper checks and wire transfers.
• P2P Payments: Facilitate peer-to-peer (P2P) payments between individuals or businesses. This feature allows for the quick and secure transfer of funds between bank accounts without the need for cash or checks.
• Lending and Loan Repayments: Automate loan repayments, making it more convenient for borrowers. It also reduces the risk of late or missed payments, as payments can be scheduled and processed automatically.

Here are some examples of how Dwolla customers have used Dwolla’s ACH API to automate payments.

Insurance Platform Uses ACH Payments for Efficient Claim Reimbursement

• This pet Insurance company started searching for a more efficient reimbursement solution to help scaling efforts, it was a collaborative effort across accounting, engineering and strategic teams.
• They onboard thousands of policyholders on a monthly basis. Implementing ACH payments has allowed their customers to claim reimbursements 5 days faster than with a paper check.
• Electronic ACH payments save this insurance company over 92% in costs vs. paper checks.
• Reimbursement efficiencies improved by over 800% by switching from paper checks to ACH.
  
  

Investment Platform Facilitates Art Buying with ACH Transactions

• This investment platform uses standard ACH transaction timing not only as a check against fraud but also as a peace-of-mind payment method that lets them know how much money is in the bank and when it will arrive.
• Since going live with Dwolla, they went from transferring “a couple hundred thousand dollars” through the Dwolla Platform to facilitating tens of millions a month in art investments.
• For their end users, having the ability to make a quick and easy investment is a significant step in making art acquisition more accessible. The flexibility and ease of ACH payments with Dwolla means the API works in the background with little to no intervention from the company’s engineers.
• Payment volumes scaled by 200% using ACH transactions.
  
  

Real Estate Platform Uses ACH for Inexpensive, Quick and Reliable Payments

• Real estate companies and escrow holders use this real estate platform to collect earnest money deposits and commissions electronically, eliminating the need to manually deliver paper checks or conduct real estate transactions in person.
• When they first implemented Dwolla’s payment API, the company used standard ACH transaction timing to facilitate real estate payments. When clients started requesting faster payment options, they added Same Day ACH payments to their suite of features.
• After adding Same Day ACH transactions they experienced 212% growth in new client contracts, 376% growth in payment transactions and 483% growth in the dollar amount of funds transferred through the platform.
• The technology team can easily toggle between Standard ACH and Same Day ACH transfers, depending on the end user, risk factors or use case.

Whether you’re building a platform for investing, a marketplace or service that needs to send mass ACH payouts programmatically, or an app that needs peer-to-peer bank transfers—we’ve got you covered.

Is an ACH API?

Automating ACH payments through a payments API (Application Programming Interface) can significantly enhance security compared to manual processes and outdated payment methods.

• Tokenization replaces sensitive bank account and routing numbers with unique tokens, minimizing data exposure during transmission and storage. This reduces the risk of storing sensitive information and protects against unauthorized access.
• Secure data exchange solutions facilitate safe data sharing with trusted partners.
• Open banking offers instant account verification and balance checks to prevent unauthorized transactions, flag potentially fraudulent activity, and create a smoother payment experience.
• Automating ACH payments reduces manual processes and human interaction with sensitive data, which minimizes the risk of human error and potential vulnerabilities.

To ensure secure automated ACH payments, it is vital to choose a reputable API provider and implement best practices within your business:

• Choose an API provider with strong security protocols and industry-leading certifications, such as SOC 2 Type 2 and SOC 3, which demonstrate a commitment to security and compliance.
• Implement multi-factor authentication (MFA) for all users to add an extra layer of security to user accounts.
• Use IP whitelisting to restrict API requests to authorized IP addresses.
• Enable alerts and notifications to monitor account activity and identify suspicious API activity.
• Regularly review and update security policies and procedures to adapt to the evolving threat landscape.

While payment APIs offer substantial security benefits, the overall security of automated ACH payments depends on both the API provider's security practices and the implementation and security measures adopted by the business using the API. Choose an API provider that prioritizes security and implement appropriate security measures within your business to ensure the secure processing of your automated ACH payments.

What are the benefits of an ACH API?

Investing in a payments solution like a payments API, even with a monthly cost, is often far more affordable than the numerous costs associated with manual payments. A payments API can help prevent costly outcomes from human errors, slow payments and poor security measures. The features of such payments solutions make them an ideal option for all businesses.

A business can take advantage of the following benefits by using a payments solution like Dwolla:

#1 Efficiency

Any payments API that can streamline the transaction process will improve your efficiency. Modern solutions can simplify operational tasks, reducing the time spent processing transactions from days or weeks to a matter of hours. Allowing a payments solution to manage and automate your payments will make your business run more smoothly and increase productivity and overall business performance.

#2 Reducing Employee and Administrative Costs

A payments API that doesn’t require manual intervention saves time and money spent on payment processing tasks and employee training. It also gives employees a break from tedious manual processes, which can increase employee satisfaction and retention. Eliminating the need for paper invoices, receipts and checks can save your business money on bank fees and printing, postage and secure disposal costs.

#3 Increase Compliance

Using payments solutions for digital transactions enables businesses to meet industry standards and adhere to best practices. Automated solutions can be configured with built-in controls to help businesses comply with regulations. For example, a system could require two-factor authentication for all payments or automatically reject payments that do not meet certain criteria.

It also simplifies internal compliance procedures and audits. Electronic records can easily be scanned for errors and cross-checked with other documents like requisitions and invoices, and system reports can show all payments made, to whom they were made and the dates on which they were made.

#4 Scalability

Payments become one less thing you have to worry about during your business expansion. Scalable payment solutions can help businesses achieve new growth without sacrificing quality because they can adapt to handle increased transaction volumes and more complex payment processes. For example, Dwolla’s scalable infrastructure and payment API allow businesses to manage up to 5,000 transactions at once in only a few clicks.

#5 Fraud Reduction

Payments APIs provide enhanced security measures and real-time transaction monitoring capabilities. These APIs are able to limit the number of times sensitive customer and account information has to be sent back and forth by using tokenization to prevent unauthorized access. By eliminating the need for paper checks, invoices and receipts, they also limit the chance of unauthorized access to or loss of physical records with sensitive information on them.

Additionally, such APIs typically provide real-time payment status information and notifications. Up-to-date payment statuses give you visibility into each individual payment as it processes, while real-time webhooks proactively notify you about changes in payment status (including returns). Both these features allow you to identify problems and react to fraud quickly. For higher levels of monitoring, you can integrate the payments API with your current fraud monitoring and prevention systems to detect unusual patterns or discrepancies and swiftly identify and prevent fraudulent activities.

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How to Get Started with an ACH API?

Businesses can unlock significant advantages by transitioning from manual processes and outdated payment methods to a white-label ACH API like Dwolla:

• Dwolla can simplify the integration process, improving payment operations efficiency by over 800%.
• Dwolla offers a variety of solutions to meet the specific needs of enterprise clients, including customizable and scalable solutions.
• Businesses can get up and running quickly, without having to worry about longer implementation times due to potential complexities in bank onboarding processes.
• Dwolla offers a clean, well documented API and dedicated support channels, including clear and concise documentation with an AI assistant, as well as a responsive support forum.
• To get started, schedule a payments consultation today.