Why submit electronic sales tax payments via ACH credit?

• Author: Ford, James
• Position: Automated clearing house

Benjamin Franklin once wrote, "In this world nothing can be said to be certain, except death and taxes." But how one processes the payment of those taxes is not so certain. In the case of electronic sales tax payments, there are two options that have both a time and a monetary impact: an Automated Clearing House (ACH) credit electronic payment or an ACH debit electronic payment. Which is better? Here is how to choose.

The movement of money and information from one bank account to another in the United States is handled by the ACH Network, which is managed by the not-for-profit electronic payments association NACHA. At the center of 23 billion electronic financial transactions totaling over $40 trillion per year, the ACH Network is one of the largest, safest, and most reliable payment systems in the world.

Payments: ACH Credit vs. ACH Debits

Direct payment via ACH is the use of funds to make a payment. Individuals or organizations can make a direct payment via ACH as either an ACH credit or ACH debit transaction. The differences between these two options are:

* A direct payment processed as an ACH credit pushes funds into a designated account. An example of this is when the user initiates a payment through his or her company's bank to be deposited into a state's bank account to pay a tax bill.

* A direct payment processed as an ACH debit pulls funds from a designated account. An example of this is when the user establishes a payment for a tax bill to be debited from his or her company's bank account by entering his or her company's bank information on a state website.

* With ACH credit, payment batches can be released with any future effective date. This helps the payer manage its bank account because (1) payment batches can be released by due date rather than the next business day; (2) payment batches can be released before funds have posted to the account (this helps with short turnaround (funds in and payments out)); and (3) returns can be filed without payment on state websites, expanding the time frame to get numerous time-consuming filings completed.

* With ACH debit, payments usually have a "next business day" effective date. This is inconvenient for managing a bank account because (1) payments that are released usually default to the next business day on the state-run websites; (2) payments default to the next business day so one must wait until funds are in to begin releasing individually (this helps with a short turnaround time...