Electronic Funds Processing for Small Business

Tuesday Jul 27th 2010 by Stuart J. Johnston
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As more financial transactions are handled entirely electronically, automated clearing house service providers reach out to a largely underserved market -- small businesses.

Technology today is so affordable that a small business ecommerce website can offer most of the features found on the websites of much larger companies. However, one area of ecommerce that often falls short for small business owners is the capability to process financial transactions electronically.

Big businesses most often use automated clearing houses (ACH) to provide the services that clear transactions between the payer's bank and the merchant's bank electronically -- under the watchful eyes of the Federal Reserve Banks. By using ACH, parties get their money faster at lower cost than other options, and they benefit from the protection of high-quality security.

Now there are ACH processors that provide small businesses with an economic alternative to credit cards and their high processing fees.

For instance, small businesses can sign up with epayment firms like Bill.com

Small businesses can also use ACH Federal to collect and process payments from customers online, make payments to vendors, deposit payroll funds into employee accounts, and perform other financial transactions via ACH.

"As the online payments market continues to grow and the use of paper checks decreases, ACH processing is becoming the industry standard for electronic payment transactions," according to a statement from ACH Federal. Banks and merchants that can't provide those services run the risk of finding themselves at a disadvantage to larger companies that do.

Show Me the Money

Founded by three accredited ACH professionals, ACH Federal began providing ACH services to banks and small businesses in mid-2009.

"ACH Federal has processed more than 3.2 million transactions since March 2009, and is currently averaging more than 400,000 transactions per month," the company said in an April statement.

"What we're offering is very inexpensive to use," Craig Cotter, director of sales for privately held ACH Federal told Small Business Computing, adding that a wide range of businesses can take advantage of ACH services.

For instance, potential small business customers include child care centers, auto shops and dealerships, charities, apartment rental managers, small hotels, local gyms, storage rental companies, and so on.

At the NACHA 2010 conference in late April, ACH Federal announced that the company had already signed up more than 20 financial institutions and more than 15 direct small business customers.

Industry-wide, NACHA reported that, during the first quarter of 2010, 3.88 billion transactions worth more than $7.7 trillion were conducted -- an increase of almost 3 percent from the same quarter last year.

How ACH Federal's Electronic Payments Work

Though a number of ACH Federal's customers are small and mid-sized banks, with assets between $300 million and $3 billion, the company also offers its services to small business owners that want to simplify and speed up payment processing.

ACH Federal's service uses a simple-to-navigate, Web-based ACH service that takes advantage of the company's direct link terminal to the Federal Reserve Bank, Cotter said. The terminal is provided by a "sponsor bank," he added.

ACH Federal provides receipts and proof the money has been paid, while also freeing the business from much record keeping -- customers can look up six years of data online. That can save both money and time.

Of course, security is of utmost importance when you're in the business of processing electronic financial transactions, which is why ACH Federal built what the company calls "a fully automated platform [that] uses data encryption and multi-factor authentication for maximum security."

"ACH Federal is offering a competitive set of services to small business," a company spokesperson said. "We offer small businesses the same kinds of services that big banks provide. As paper goes away, small businesses will be looking more towards ACH," he added.

One of ACH Federal's newest customers is Trifish Finance. The Los Angeles-based Trifish originates and processes auto loans.

"We're an auto finance company and we collect millions of dollars every month," Avi Shraga, president of Trifish Finance, told Small Business Computing.

Trifish, which has 15 employees and about 4,000 accounts, previously used ACH services from MoneyGram International.

"ACH Federal began processing with Trifish in May 2010 and, in just the first 30 days of the relationship, processed more than $434,000 worth of transactions," a statement from ACH Federal said.

Shraga is happy with the price of processing transactions, too. "Without ACH, I don't know what I would do," Shraga said. "I guess [we'd switch to] credit cards, but it's more expensive. In the next decade, everything will be electronic."

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals. Follow him on Twitter @stuartj1000.

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