While ACH payments bring plenty of value, especially to businesses with a subscription model, they come with plenty of pitfalls that can be costly when you aren’t keen.
Which are these ACH pitfalls, and how do you avoid them? Here they are:
Since ACH payments don’t settle immediately, customers can buy without sufficient funds in their accounts, then the ACH network later rejects the transaction.
This means that you can send the goods or deliver a service to your client only to have the transaction rejected and you lose money.
To avoid this, take your time looking for an ACH merchant such as https://paymentcloudinc.com/accept-payments/ach/ that has “balance check” tools that check to ensure that the customer has enough funds in their accounts to cover a transaction.
The Federal Reserve payments study reports ACH as the payment method with the lowest fraud rate. While this is the case, it doesn’t mean that fraudsters won’t try to rip you off. Most of them will try to initiate unauthorized debit transactions that can go through if there isn’t a protective layer.
To avoid losing money using this method, work with a payment processor providing fraud preventing tools.
As you are scouting for a payment processor, ask as many security-related questions as possible and get to know how they work.
Plenty of cases have been reported where a customer makes a payment and forgets about it. As mentioned, ACH payments don’t settle immediately—they often have a one or two-day delay.
This means that when a customer makes a payment and forgets about it, they are surprised to find money missing in their account or have an unexpected overdraft fee from their bank.
Most of them think they are being scammed and try to reverse the transaction.
To avoid this, be proactive and let your customers know when they should expect the money to be deducted from their account. Whether it’s going to take a day, two days, or even longer, let your customers know so that they don’t reverse the transaction or file a complaint about a transaction that was legally done.
Missing KYC details
When collecting ACH payments, it’s your responsibility to collect the Know Your Customer (KYC) details. This means you should verify the customers’ identity by knowing their names, addresses, and other relevant information.
You also should play by the anti-money laundering (AML) regulations by regularly engaging in ongoing monitoring and ensuring that the funds you collect aren’t being used for money laundering or financing terrorism.
To ensure that no unscrupulous people are using your system, confirm with your ACH payment processor how they keep the customer information and make it easy for you and your business to follow the AML regulations.
Work with the right payment processor.
As you have seen, most of the heavy lifting needs to be done by the payment processor, so when you are finding one, take your time and ensure that you hire a reputable one with all the security features in place.