What is ACH and How Does it Work for Rent Payments?

Rent collection can be a challenge—collecting checks, chasing after late payments, and dealing with bounced payments. It can often be a burden for landlords and tenants, too. And if it’s difficult to pay rent, it may be difficult to ensure you’re getting paid on time.

What if you could collect rent easily while saving time, reducing missed payments, and ensuring each month’s rent came in on time at the correct amount? Enter the ACH payment. If you're wondering what is ACH and why everyone and their dog seems to be using it, read on. In this post, we’ll walk through what an ACH payment is and how it can make rent payments easier for both landlords and tenants.

What Is ACH in Terms of Rent Payments? 

ACH, or Automated Clearing House, is an electronic network that connects all U.S. banks and allows money to move between accounts automatically.

Instead of old-fashioned paper checks, ACH is a direct deposit right from the tenant's checking account. This means a landlord can request an ACH transaction each month to cover the cost of the tenant's rent payment. It is secure, easy, and requires setting up on both the tenant and landlord sides. Things like ACH fraud are rare, so it is not only convenient but also protects a tenant's direct deposit.

On a daily basis, ACH processes billions of electronic transactions, including:

• Payroll direct deposit
• Social security and tax refunds
• Online utility and credit card bill payments
• Monthly insurance premiums
• Electronic check conversions

ACH handled over 25 billion digital transactions in 2022 alone. It's the workhorse behind practically all electronic payments today. Now let’s see why it’s often used for rent collection.

How Does the ACH Payment Process Work?

The Automated Clearing House process takes a few days but is safe and secure. Here's what happens behind the scenes:

1. Authorization: The first step is getting authorization from the tenant to receive funds from their bank account. This is typically after the tenant signs an ACH payment authorization agreement.
2. Initiation: Once authorization is obtained, the landlord initiates the ACH payment via property management software. The landlord can then set up payment.
3. Transmission to ACH Network: The payment is then processed by the bank in batches along with other ACH transactions.
4. Validation and Routing: The ACH network validates the transaction details including account numbers and routing numbers. It then routes the transactions to the appropriate receiving financial institutions.
5. Settlement: The tenant's bank receives the transaction and debits the tenant's account. The funds are then credited to the landlord's bank account to settle the transaction.
6. Confirmation: Once the transaction is settled, the tenant and landlord receive confirmations, usually electronically.
7. Posting to Accounts: Finally, the transaction is posted to the tenant's and landlord's accounts. The rent payment shows up as a debit on the tenant’s bank account statement and the landlord's account statement shows a deposit for the rent amount.

ACH Transfer Fees: A Quick Calculation

An ACH payment typically has much lower fees compared to a credit card transaction. Here are typical fee types and amounts:

Example Fee Calculation*

So, in this case, if we assume the following:

• $1.00 transaction fee
• $20 monthly fee
• 20 transactions in the month

Then the Total Monthly Cost for those transactions is $40. If you enjoy math equations, we’ve got a good one for you. Here’s how we got there:

TotalMonthlyCost=(TransactionFeexNumberofTransactions)+MonthlyFeeTotalMonthlyCost=(TransactionFeexNumberofTransactions)+MonthlyFee

Or:

Total Monthly Cost = ($1.00 x 20) + $20

Total Monthly Cost = $20 + $20 = $40

Why Pay Rent with ACH?

Some key benefits of ACH rent payments include:

• Cost Efficiency: ACH is 50-70% cheaper than credit card payments.
• Security: ACH network has a lower risk of fraud or chargebacks compared to checks.
• Convenience: Recurring payments reduce admin work for landlords and tenants.
• Speed: Transactions typically settle in 1-3 business days.

Example Scenario

Let's look at an example landlord with 10 tenants paying $1,200 each in monthly rent via ACH:

In this case, the landlord collects $12,000 in total rent, pays $10 in fees, and nets $11,990.

More Benefits of Paying Rent with ACH

When you accept an ACH transaction from tenants, you’ll benefit from several perks:

• Set up automatic payments to get paid on time every time
• Funds are immediately available for use when they’re deposited
• Save significant time on bookkeeping compared to checks
• Easy and straightforward

Plus, if you use TenantCloud, you can waive your tenant’s ACH fees if they are enrolled in monthly rent reporting to build their credit. This is a win-win for everyone! 

Your tenants will also enjoy these benefits:

• ACH transactions are automatic every month—they can set it and forget it
• Never worry about late fees with auto pay
• Pay conveniently from anywhere with an internet connection
• Easily track payments with digital receipts
• Avoid check writing, stamps, and money orders

An ACH transfer creates a predictable, efficient process that makes it easier for everyone. Now let's walk through getting set up.

How to Set Up ACH Payments as a Landlord

There are two simple options for accepting automated ACH payment: electronic payment through your bank or with a property management platform like TenantCloud.

1. Bank and credit unions: Some financial institutions enable businesses to accept online payments from customers. The money transfers directly into your commercial checking or merchant account. 
2. Property management platform: This software comes with added perks, like making it easy to manage tenants and properties. It may also allow auto pay, payment reminders, and other payment methods, like credit/debit.

How to Pay Rent with ACH on TenantCloud

Getting ACH set up for landlords and tenants is short and simple. Here’s how.

Step 1: The landlord must allow ACH payments

With TenantCloud, landlords and tenants are given a separate payment portal to pay rent and manage their financial needs. Once the landlord has verified their account and added a bank account, they can start accepting payments.

Step 2: Set up a tenant account on your landlord's online portal

Once your landlord confirms they support ACH payments, ask them how to access their tenant portal to make an account.

You’ll need to provide details like your:

• Full name
• Contact information
• Unit number
• Lease details

After registering, you'll receive login credentials enabling you to manage payments.

Step 3: Enter your bank account information

Within the portal, there will be a section for setting up automatic payments. Here you'll need to provide your bank account information, including:

• Bank name
• Routing number
• Account number
• Account type (checking or savings)

Double-check check the numbers match your bank statements before submitting. This ensures payments are pulled from the correct account.

Step 4: Authorize recurring ACH bank transfers

Finally, digitally authorize your landlord to debit the monthly rental amount from your specified checking account. Once submitted, your landlord will receive an email confirming the ACH setup on their end. Congrats, you can now enjoy automated rent payments!

ACH vs. Other Rent Payment Options: Which is Best?

Using ACH through an online portal is a great way to collect rent today. But how does it compare to other payment methods that are traditionally accepted? Here's an overview of the pros and cons of different rent payment options:

• ACH bank transfer: Process automatic monthly payments directly from your bank at a lower processing rate. It is easy to set up recurring transfers, the only downside is that it can take several days to process.
• Personal checks: Simple and familiar but risk bouncing checks or having them delivered late. There’s also no protection against fraud or insufficient funds.
• Credit or debit: Using a debit or credit card to pay rent allows tenants to earn points on credit cards and have the funds deducted immediately from their accounts. However, there are limits on payments, and there may be higher processing fees.
• Peer-to-peer payment apps: Services like Zelle, PayPal, and CashApp are convenient for sending one-off payments and are largely popular right now, but they are not as user-friendly when it comes to setting up recurring payments. They might also include transfer fees and fewer payment protections compared to ACH.

As you can see, many options have pros and cons, so it depends on what your payment goals are. 

Is Paying Rent via ACH Safe and Secure?

It's normal to have some security concerns about any electronic payment method. Are ACH rent transfers safe? How can you ensure payments stay protected?

The good news is ACH rent payments are very secure. Here's why you don't need to worry:

• ACH verifies identities before processing payments. Banks require personal information to match account holders before allowing ACH withdrawals.
• Encryption keeps your data safe. Information is converted into code during transfer to prevent any hacking or theft.
• Banks monitor ACH activity for fraud. Financial institutions have advanced technology to detect suspicious patterns in real-time.
• You can set limits on your account. Many banks allow you to restrict the amount or frequency of ACH transfers from your account for added protection.
• ACH payments are traceable. Unlike cash, ACH debits create a digital paper trail between accounts.
• You can cancel permissions at any time. To stop payments, simply notify your bank and landlord.

Just like using a debit card or paying bills online, ACH leverages the latest security standards and technology to keep your information safe. As long as you use a strong password on your landlord's portal, you can feel confident setting up automated rent payments.

How Popular are ACH Rent Payments?

It's clear that ACH offers major benefits in convenience and efficiency for rent payments. But just how widely adopted is it so far? Recent statistics reveal the popularity of ACH rent collection methods continues to expand rapidly:

• Volume and Growth: In the second quarter of 2024, there were 8.3 billion ACH payments, marking a 6.3% increase from the same period in 2023. The total value of these payments was $21.6 trillion, a 7% increase.
• Cost Efficiency: ACH payments are typically 50-70% cheaper for landlords compared to credit card transactions. This makes them an attractive option for property managers looking to reduce costs.
• Utilization Rates: Companies that absorbed ACH processing fees for residents saw an average digital payment utilization rate of 84.71%. In contrast, those who passed the fees to residents had a 47% utilization rate.
• Settlement Times: ACH transfers usually settle within 1-3 days, providing a quick and reliable way to manage cash flow.
• Security and Fraud Reduction: ACH payments are known for their reduced risk of fraud, failures, and chargebacks, making them a secure option for both landlords and tenants.
• Consumer Preferences: The demand for efficient digital transactions is growing, and ACH payments help meet this demand, contributing to higher customer satisfaction and retention rates.

As you can see, millions of rent payments are already flowing through ACH channels. This number will likely keep growing as more landlords adopt online rent collection tools.

Conclusion

Paying rent with ACH is easy and convenient for both landlords and tenants. While tenants get to enjoy an easy, automated process for one of their biggest bills, landlords get the peace of mind on not having to track down payments as much as other methods. Keep in mind that we are not a financial institution, and if you need any financial assistance, please reach out to a specialist or advisor. 

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Frequently Asked Questions

What if I'm still waiting on payday when my rent is due? Can I delay the ACH withdrawal?

Unfortunately, no. The withdrawal will still be attempted as scheduled and can result in overdraft fees if funds aren't available yet. The best option is to plan ahead and make a direct deposit sufficient to cover rent prior to the due date or talk to your landlord about adjusting the payment date slightly later in the month.

I scheduled a large ACH transfer right before my scheduled rent payment. Will that affect the rent transfer pulling successfully?

Yes, any large debit transactions close to your scheduled rent payment date can inadvertently cause insufficient funds. To be safe, avoid any big ACH debits within 5 business days of your rent being due to ensure enough remains for rent.

What if I want to dispute or reverse an authorized ACH rent payment?

ACH rent payments can be disputed within 60 days for unauthorized or incorrect amounts. You need to submit a signed written notice to your bank and landlord. However, valid payments authorized initially can't be reversed once successfully transferred.

Can my landlord require ACH for rent payments or am I allowed to pay by check if I want?

Landlords can require ACH transfers for rent as a condition of signing a lease. However, they would need to provide an alternate payment method if the bank account is closed or if the ACH method fails for any reason.

How does providing my account information for ACH rent compare security-wise to giving my debit card details?

Payments made via an automated clearing house may be more secure since debit card numbers can be stolen and used for unauthorized purchases. ACH requires identity verification and only pulls from your account on set dates with amounts you agreed to.

What if my bank account changes - how can I update the details for my ACH rent payments?

Notify your landlord immediately if your banking details change for any reason. You will need to provide the new account number and routing number through their online portal to update where future ACH rent payments pull from.

Can I use a credit card instead of my checking account for setting up ACH rent payments?

Unfortunately, credit cards can't be used directly for ACH. The system is designed to link with your checking or savings account. However, some services let you pay by credit card then they issue ACH transfers on your behalf.

How can I be certain my ACH rent payment went through each month?

You should receive an email confirmation every time an ACH rent payment is completed. But for total assurance, log into your bank account online after each scheduled withdrawal to confirm the rent was debited as expected.

If my landlord and I agree to end my lease early, how do I cancel ACH rent payments?

Provide written notification asking your landlord to terminate the ACH agreement on their end. You'll also want to notify your bank instructing them not to allow withdrawals from the landlord's account for rent payments moving forward.