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ACH APIs enable companies with high transaction volumes to write software that automates payments over the ACH network. These APIs make it possible to initiate, receive and track payments at scale by eliminating manual processes.
For example, let's say you manage 1000 residential properties in California and need to collect rent from tenants each month using ACH. Every month, you would need to log into your bank portal and initiate 1000 ACH debit payments to your tenant’s bank accounts. You would need to handle payment failures due to issues like incorrect account information and insufficient funds. Also, each new payment flow you need to process, like refunding deposits for example, requires additional manual work. Running all of this manually by clicking around in your bank portal is not feasible over the long term or at scale.
But, using ACH APIs to integrate payments capabilities into your property management software is a more feasible long-term solution.
How do ACH APIs work
ACH moves more than $61 trillion annually and is one of the most common forms of payment today. You might recognize ACH once you know where to look. It's likely how you receive your paycheck, pay your electricity bill, or make an electronic money transfer to pay rent.
Many banks, financial institutions, payment processors and software companies are building ACH APIs to streamline high volume ACH payments. So, what exactly is an API and why are they so useful?
APIs, or application programming interfaces, are simply a way to make two separate software programs talk to each other. Think of it as a menu — an API will have a list of commands you can execute with code. So, you can essentially order a program to accomplish a certain task. Each command corresponds to an API call which is a single instruction to write, read, modify or delete information from the system.
An ACH API does exactly that but for payment use cases. You could write code to initiate 1000 ACH debit payments at the 1st of every month with a given set of accounts. Or, you could write code to transfer $500 to your maintenance vendor after they complete a task. Using APIs, you don't have to log into your banking portal and make sure every transaction was executed successfully — the API does that work for you automatically.
How to pick the best ACH API for your business
An ACH API integrates with your bank to save you time and allow you to deal with lots of payments and complex money flows. But, not all ACH API providers are built the same. Here are some questions to keep in mind as you evaluate ACH APIs:
How many transactions can I execute?
Will the API scale if you run 100 transactions a month? What about 1,000? What if you’re processing a million transactions a month? Make sure the API you're picking is scalable and able to ramp up alongside you.
Does my bank provide ACH APIs?
Some banks provide their own ACH APIs while others partner with third parties to provide API access to ACH. Since there is no universal standard in place, each bank’s ACH API is different from the next. Some banks provide modern REST APIs that can integrate with any web service while others can only support batch file transfers that are harder to integrate.
Modern Treasury directly integrates with major US banks to provide you with a simple and straightforward ACH API you can use for multiple banks and bank accounts.
How is the developer experience?
Your developers should be able to use an ACH API easily and efficiently. Some API providers are better than others. To vet an API provider, take a look at their quickstarts, guides and examples of API requests if that documentation is available. If you have an easy time making your first payment, that's a good sign.
Should I directly integrate with a bank?
Traditionally, direct bank integrations are expensive and time consuming. You need to budget maintenance time to ensure the integration is running properly and continue to upgrade your integrations after building them. It makes more sense to focus on your core product rather than building a bank integration, only to have to repeat that process each time you add a new bank.
Will it help my finance team?
Finally, you want to make sure your ops and finance teams are on board with your choice of API. Integrating using ACH APIs will make their life easier by eliminating time-consuming manual tasks.
You should make sure the API you choose comes with a web interface that allows these teams to track and monitor payments and features to make reconciliation, controls, and payment approvals easier.
To learn more about ACH APIs, take a look at these articles:
- Can ACH payments be automated?
- How do I accept ACH payments from customers?
- What is the difference between ACH and EFT?
To learn more about ACH, bank partners, and applications for ACH APIs, take a look at these articles:
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ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks in the United States.
ACH APIs enable companies with high transaction volumes to write software that automates payments over the ACH network.
An ACH credit refers to the process of electronically depositing, or “pushing,” funds into a bank account using ACH.
In an ACH debit, funds are electronically withdrawn, or “pulled,” from a bank account using ACH.
A Notification of Change (NOC) is used to notify the sender of an ACH payment to correct or change information related to a customer’s bank account.
A return is a credit or debit entry initiated by the Receiving Depository Financial Institution (RDFI) that returns a previously originated payment to the Originating Depository Financial Institution (ODFI).
ACH return codes identify the reason an ACH payment was returned by the recipient's bank. They make it easier to spot and resolve payment failures.
An ACH reversal refers to an erroneous ACH payment that a payment originator requests to take back, or reverse.
Credits and debits are two kinds of ACH transactions. Whereas a credit involves depositing, or “pushing,” funds into a bank account, for a debit, funds are withdrawn, or “pulled,” from an account.
FedACH is the automated clearing house (ACH) service of the Federal Reserve Banks.
Part of the FedACH system, FedGlobal ACH offers low-cost and efficient cross-border ACH payments.
The two kinds of financial institutions in the ACH network are ODFIs (Originating Depository Financial Institution) and RDFIs (Receiving Depository Financial Institutions).
A Standard Entry Class or SEC code is a three letter code that describes how a payment was authorized by the consumer or business receiving an ACH transaction.
US companies moving money internationally will likely weigh the pros and cons of SWIFT vs. Global ACH when it comes to attributes like speed and cost.
ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks and financial institutions in the United States.
An electronic funds transfer (EFT), also known as a direct deposit, is the digital transfer of money between bank accounts. As digital transfers, they reduce the need for manual input and paper documents.
Global ACH can help companies move money from US-domiciled accounts across borders using local rails. Learn how and when to use this payment rail.
A Request for Payment (RFP) is an ACH Network message that can be used by businesses to send electronic invoices to their customers.
Same-Day ACH is an improvement to the ACH network that allows the processing of credit, debit, and return transactions several times a day.
A pre note or prenotification is a zero dollar payment to validate the account and routing details of a bank account before debiting or crediting it.
An International ACH Transfer—also known as Global ACH—is an ACH payment made cross-border from a US-domiciled account.
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