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Why do ACH payments take a long time to clear?
Why do ACH payments take a long time to clear?

Learn about the Automated Clearing House (ACH) Pull process, compare with other ACH providers, and why Ignition has chosen the Pull process.

Pat Kuo avatar
Written by Pat Kuo
Updated over a week ago

How ACH works

There are two methods of ACH:

  1. "Push transactions" - When a customer directly sends payment from their bank account (AKA pushes funds) and usually from a set of instructions - such as an invoice. Push transactions do clear faster (typically 2-3 business days) because the customer's authorization is instantly verified and their account balance is instantly checked to ensure that the transaction can be successful.

  2. "Pull transactions" - When a supplier requests funds (AKA pulls funds) from their customers' account. These take longer to clear (6 business days) because the requesting bank needs to send instructions to the originating bank to authorise the transaction and verify that the funds are available (see the next section below).

Ignition uses the Pull methodology to facilitate payments between you and your client.

Why does Ignition use the pull process if push payments are faster?

While push transactions clear faster than pull, the biggest challenge is that it's completely out of your control.

It gives your client complete control of when they decide to pay you.

The result? According to Accountants daily Australia:

"Research has shown that the average debtor days for accounting firms is 53....Payments for accounting services can be seen as a ‘grudge payment’ – something that’s a necessary expense but doesn’t directly contribute to business growth. An invoice for accounting services might fall to the bottom of a business’ priority list when compared to other expenses, such as paying staff and rent"

We strongly believe that you should be in control of your own cashflow.

Ignition allows you to clearly describe your scope of work, set clear expectations of the billing schedule and your terms and conditions.

With these elements in place, your client can be confident that they will get what they paid for and opt in to pre-approved payments via the pull process.

Hundreds of practices have taken advantage of this workflow to eliminate debtor days entirely.

Breaking down the process

Please note that Ignition never withholds your money. This is illegal business practice!

In addition to the above, Stripe is our provider that coordinates the transaction pull request, as well as the reconciliation of your payment.

To be clear, Stripe are not holding your funds either.

Here are the basics of how it works:

  1. Ignition sends instructions to Stripe based on your billing schedule to start the payment process.

  2. Stripe receives the instructions and then coordinates the transfer of funds from the originating bank (your clients’) to the receiving bank (yours). This is the pull transaction request.

  3. The receiving bank receives the request and then sends all of the requests they’ve received on the same day from every single person to the Federal Reserve (AKA The Clearing House).

    This is considered legacy technology and is how they process cheques. For some reason, they’ve continued to use this tech for digital payments.

    This is where the most significant delays exist.

  4. After 4-5 days, the originating bank (your clients' bank) sends a message back to the Clearing House to tell them if there are funds available (or not).

    Once that’s received, they begin the process of sending the funds.

    If there are weekends in this time frame, the time gets extended as the Clearing House is closed on the weekend - as are all banks that aren’t retail locations.

  5. Stripe gets notified and then begins transferring the funds once the Clearing House approves.

  6. Ignition gets notified by Stripe, which then means we can mark the payment as successful.

  7. Once funds are delivered to our trust account 6 business days later, we immediately payout - no holds, no delays.

    We receive the money in trust, so we know with certainty that it’s getting delivered to you. At that point, we can mark your invoices as paid in Xero or QuickBooks.

Please note that we completely understand the frustrations around ACH timeframes.

At this point in time, there is nothing in our control that can do anything to speed this process up.

A timeline of ACH Payments

Below is a visual timeline explaining the ACH payments process in more detail.

Click the image to enlarge!

Why do other providers have a faster ACH payout timeframe?

There are two reasons why other providers could have a faster ACH payout timeframe

  1. They are using the push process. For example, you send an invoice to the client, and the client pays via Paypal, directly via Stripe, or QuickBooks payments.

  2. They use the pull process, but they are paying you out of a float. This means that they have a source of funds in their own bank and can immediately pay out the transaction once they've received the initial confirmation from your clients' bank. However, this carries a lot of risk and additional fees that they may charge you in cases such as chargebacks and client disputes where it gets deducted from their cash float. Typically these providers charge higher payment processing fees and in most cases also charge an NSF (Non-Sufficient Funds) fee, a failed transaction fee, and refund fees on top of the transaction fees.

Ignition does not charge these additional fees in any of these scenarios.

Please see below for a visual timeline explaining how other providers process ACH payments process.

Click the image to enlarge!

Benefits of using Ignition ACH Payments

There are many key benefits of using Ignitions ACH Payments.

  • ACH Authorization is built into your proposal, eliminating multiple steps and forms for your client to sign.

  • Set and forget billing - completely automated Accounts Receivable process

  • Full payouts leading to clean and automatic reconciliation

  • No additional chargeback of failed payment fees. Ever.

  • Automatic updates to payments if proposal scope changes.

We genuinely hope this helps clear up any misconceptions. For more information, please contact our Support team.

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