How Do ACH Payments Work?

In today’s technology-driven culture, it’s hard to think of more than a few things that aren’t electronically transferred through the ether in some form or fashion.

And depending on whom you ask, there are those who’d tell you that the collection of rent has been one of the last – and yet long-standing practices that seems to still be living in the antiquated age. That said, with the continued success of electronic funds transfers (EFTs) as a reliable form of payment (i.e. debited gas purchases, direct deposits, etc.), a growing number of real estate investors are moving towards a more cutting-edge way of receiving rent checks electronically.

The most common and current forms of EFT are wire transfers, credit cards and ACH payments, all of which have their own benefits and costs.

Wire Transfers: Or wires as they’re known, are typically used for a one-time transfer of funds and cost roughly $25- $30 per transfer. With same-day clearing, wires are convenient for moving funds on short notice or to international locations. They also are, however, a more expensive method for collecting rent. In addition, because they’re typically only for single use, wires are typically sent from financial institutions.

In contrast to wires, credit cards and ACH payments require a one-time setup on the part of the tenant, making it easier for them to authorize and provide accurate banking information. Once established, rent is automatically charged to or debited on a recurring basis.

Credit Cards: Payment via this method is attractive to some tenants who might be in the business of accumulating frequent-flier miles or other rewards through their respective credit cards. This comes, however, at a high cost (approximately 3% of transaction amount charged to the tenant) and tends to be a deterrent for real estate investors.

ACH: Now, the ACH payment network is a decades-old, nationwide, batch-oriented EFT system. It is the payment network best known for its use in transmitting payroll direct deposits for millions of employees around the nation. ACH payments enable EFTs without the high cost or possibility of recoverable rent. There is a delay in crediting (typically 3 to 7 banking days) while it is verified that the tenant has sufficient funds.

ACH payments also offer significant benefits over checks in the areas of cost, convenience, safety and operational efficiency, meaning they truly are less expensive and more safe. And with NACHA – which oversees the operating rules and business practices for the ACH network – announcing a three-phase roll-out that will “enable the same-day processing of virtually any ACH payment,” a process that is set to become even faster by March 2018, it seems more and more real estate investors see ACH as the wave of the future.

Sign up to Rentlit for help with collecting or paying your rent.  You can use credit cards, debit cards, or ACH payments (bank transfers) so making the rent every month is one less thing on your “to do” list.