What Is ACH Payment

How Can It Help SMEs Get Paid in Today’s Digital Economy?

What is ACH Payment & How Can It Help Canadian SMEs

  • By: Lean Payments

ACH is a method of American bank-to-bank payment transactions that are processed by the Automated Clearing House (ACH) network. Every country has similar networks, each with a different name. For instance, electronic fund transfer (EFT) and SWIFT are the networks that are used in Canada and Europe, respectively. As a business owner and bank customer, you probably use one of these networks without even realizing it.

 

The unique characteristic of ACH payments is that because it happens within an American local network, this type of payment method only works in USD currency.

Why is ACH Beneficial to Canadian SMEs

The ACH payment method is helpful and beneficial to small businesses, as they are quick, low cost, and easy to use.

 

► HOW LONG DO ACH PAYMENTS TAKE

ACH payments are fast; each payment is processed in batches, with three batches sent out per day. That means your payment can be processed and posted the same, or next, business day. With that said, the ACH network does not process on the weekend, hence they are only processed on business days. 

 

► HOW MUCH DO ACH PAYMENTS COST

ACH payments have a nominal cost; in most cases, the sender is the one who pays for these costs. The flat cost for an ACH payment can range from $0.50 to $1.50. This type of bank-to-bank transfer is both cheaper and more secure in contrast to wire transfers, which can cost approximately $17 per transaction.

 

► HOW CAN I USE ACH PAYMENTS

ACH transactions are super easy for a small business to do and almost all banks in the United States support sending ACH transactions. To get paid, all you need to do is include a recipient account number and routing code on your invoice. With the recent pandemic, most customers have become very familiar and accustomed to using electronic bank transfers as a method for payment. 

Why Should You Consider Accepting ACH Payments

 

The economy in the United States is ranked first in the world, while Canada is only ranked tenth. This is one of many reasons why Canadian businesses wish to expand their business to the U.S. 

 

Because the American economy is ten times bigger than the Canadian, you can expose your business to a new and vast customer base. With more customers, your business will improve it’s margins and net profit.

 

In the U.S, the norm method for sending and receiving payments are ACH payments. With using ACH payments, you are at par with your American competitors. This method of payment is familiar to your American customer and is customer-friendly.

How to Accept ACH & Get Deposits In Canada

Setting up an American bank account in the United States will allow your business to establish a presence in the American market and accept ACH. 

 

There are currently three methods to receive and accept ACH payments in Canada by getting a local bank account in the U.S. These options include:

 

► South of border banking at a Canadian bank

► South of the border banking at U.S bank

► Setting up a virtual bank account

Accept ACH Payments Now
1. South Of Border Banking At a Canadian Bank

South of border banking at a Canadian bank allows you as a Canadian business to use a Canadian bank to set up an American bank account. Thus, U.S customers can pay you using ACH payments; it’s a simple and easy option for those seeking a route with the security of a Canadian bank.

 

An example of a bank that offers this service is BMO. BMo asks that your business follows a list of requirements in order to set up the American account. With the approval of the requirements, your business can use BMO to conduct cross border transactions. In terms of pricing, fixed fees and rates fluctuate based on frequency of transactions, sending or receiving, and method of transferring money from your American account to your Canadian account. 

 

Pros:

► Good option for those looking to stick strictly with the Canadian bank. If your current Canadian bank does not offer South of border Banking, you can uses banks such as BMO Harris.

 

Cons:

► Fees are based on your type of transactions and can run pricey. Many banks only provide the actual fees post sign up 

► Your business must follow lengthty list of requirements and regulations to utilize these services. 

2. South Of Border Banking At a U.S Bank 

The second way to get a local number in the U.S is to create an American bank account subsequent to incorporating your business in the US. Although this process is lengthy and pricey, it allows customers to pay you directly with an ACH payment, just like the first option. 

 

Certain specifications must be followed as well for this method. For instance, to incorporate in America, a U.S mailing address is required, unless you’re comfortable with paying for additional mailing fees. A US mailing address can be established either through a physical mailing address, or renting an office space monthly. You may already be incorporated as a Canadian business.

 

Pros:

► Once incorporated, the power is in your hands for which bank in America you wish to use

► U.S customers can easily pay you as if you were a local vendor in America, and use ACH payments to do so

 

Cons:

► Many formalities are required, sometimes even with the assistance of a lawyer

► Expenses can accumulate for this option:  Corporate tax in the U.S is 21% higher than Canadian corporate tax rate of 15% (6% difference)

► There is a requirement for a mailing address whether this is through a physical mailing address or renting an office space monthly

3. Establish a USD Virtual Bank Account

You might be thinking… What even is a virtual bank account? This is a valid question, as virtual banking is a fairly new concept!

 

A virtual bank works just like a bank in the sense that customers are able to access, send, and make international bank transfers. As the name suggests, virtual banks differ from traditional banking in that all services are conducted online.

 

With a virtual bank account, businesses can forward or pay out money from their American to Canadian bank account, without moving their money. Meaning, your money can be dispensed within one business day interchangeably across borders. 

 

Currently, there are a number of global providers that offer virtual bank accounts; however, Lean Payments is among the first to offer Virtual Bank Accounts in Canada-- proudly Canadian. 

Lean's Account Detailed Fee Structure
How Does Lean’s Virtual Account Work

You might be wondering, how can you dispense money into your Canadian bank with just one click of a button and receive your funds in one business day?

 

Lean Payments works with global liquidity providers that push your money from one point to another. Think of it as receiving an e-transfer to a local friend; the money is sent instantly into your bank account. Meaning, your business can access its funds, get paid fast, and have an easy solution to grow in the American economy. 

 

Pros:

► A secure option, as all transactions are run through an American Financial Institution. 

► Lean helps Canadian businesses transfer out the money from their American account to their Canadian on the same or next business day

 

Cons:

► Unless your business is conducting a minimum of four transactions per month, there are monthly account fees to obtain your virtual account

► In this release, Lean's Virtual Accounts come with no ATM access, nor a debit card 

Learn More About How It Works
Things To Consider When Making Your Decision

As a Canadian business, your main goal when it comes to cross border transactions is a solution that is quick, fast and easy. Establishing a method that is simple for both you and your customers, is a driving force for which method to choose.

 

► Cross-border transactions with your current Canadian bank is a great option if you comply with your bank’s requirements and are comfortable with their fees.

► Incorporating in the US to establish an American bank account can run pricey, but many businesses today take this price to establish themselves in the U.s economy

 

However, Neither of the first two options offer a solution that allows Canadian businesses to simply transfer their American bank funds to their Canadian bank accounts. Meaning, getting paid can become a hassle.

In Conclusion

Each of the three options for getting a local bank account in America presented in this article will aid in your business to accept and receive ACH payments in Canada. All options allow you to receive and accept your money from the U.S, thereby supporting ACH. 

 

Overall, as a business you want an option that is quick, low cost and easy to use. Lean Payments attempts to satisfy these three goals with an innovative method that will change how Canadian businesses get paid in the best way possible. 

 

At the end of the day, each business is different. One business might prefer a certain option over another, based on preference and opinion. Although each option has their pros and cons, all options presented in this article allow you to receive and accept ACH payments in Canada.

Accept ACH Payments Today!