Donations are a vital component of nonprofit fundraising. A reliable payment processing system ensures that the process runs smoothly and securely, inspiring donor trust and encouraging recurring payments. ACH payment processing is often a good fit for nonprofit organizations, but how does ACH payment processing work exactly? Here’s what you need to know.
Why do nonprofits need a payment processor?
Before we delve into the details of how ACH payment processing works, let’s first look at why a payment processor is so important for nonprofits. Here are a few of the reasons why you need to be able to process payments:
Collecting membership fees
Selling tickets to events
There are multiple revenue streams for nonprofits, so it’s important to have a payment processing system that can handle everything from tickets to your fundraising gala to branded merchandise. Most nonprofits will also need a processing gateway that accepts both one-off donations as well as recurring payments.
What is ACH payment processing?
ACH stands for “automated clearing house,” which is the network used to connect thousands of banks throughout the United States. Through this network, bank account holders can electronically transfer funds from one account to another as direct deposits. Transactions are speedy and secure, requiring only a bank account number and routing number for processing.
To make the system more efficient, banks process ACH payments online in bulk batches which are processed two or three times per day. This results in lower costs, with the savings passed on to customers. However, this also means that ACH payment processing time can take up to five business days.
How does ACH payment processing work?
When a donor wishes to send an ACH payment for the first time, they will need to start the process by filling out an authorization form. This collects the following information:
Bank account number
Bank routing number
Bank name and address
This authorization form should also include a space for the donor to decide how much they want to pay. It should also state whether the payment is a one-time donation or a recurring payment that will be taken from their account each month.
The donor’s bank enters the details and authorizing information and batches it with any other ACH payments being processed that day. The payment is then sent to the nonprofit’s bank, also called the receiving depository financial institution (RDFI) where the funds are deposited into the appropriate bank account once cleared. While the full ACH payment processing time normally takes between three and five days, same-day processing is available in some cases.
Benefits of ACH payment processing
Like any business, there are many different payment processing options for nonprofits. So, why should you process ACH payments online? Setting up online ACH payments offers a host of benefits, primarily the ability to set up recurring payments for long-term donors. With recurring payments, your organization benefits from more predictable cash flow and improved revenue streams.
Here are additional advantages of using ACH payment processing for nonprofits:
Convenience: Compared to collecting cash and paper check payments and depositing these in person at the bank, accepting electronic ACH payments is far more convenient. Nonprofits often work with stretched resources, so anything that can save you time is a huge benefit. After your donors authorize a payment, it’s automatically deposited directly into your bank account. The process is also easier for donors, who retain full control of their payment schedule.
Lower fees: Credit and debit cards are another convenient way to accept payments, but these come with the burden of higher transaction fees. Because ACH transactions are processed in bulk, they are usually cheaper than a like-for-like credit card donation.
Secure payments: Cash and paper checks can be lost or stolen. Electronic banking ensures that all financial details are transmitted through the highly secure ACH network. Be sure to use secure ACH processing software and encrypted authorization forms to protect your donor’s details.
Of course, choosing a reliable payment processor is important when you’re looking at ACH payment processing for nonprofits. Compare fees, timings, and user-friendly features carefully to ensure that you find the best fit both for you and your donors.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.