Recurring ACH Payments

Technology to use for Recurring ACH Payments

Use Subscription Billing Software to Set Up Recurring ACH Payments

The technology that SaaS companies use to enroll customers in recurring ACH payments is called subscription billing software.  There are several dozen providers on the market, including a few such as Ordway, that specialize in recurring billing for SaaS companies.  There are two ways that subscription billing software can be used to enroll customers in recurring ACH payments.  It can either 1) be embedded in the SaaS company’s application , or 2) it can be exposed directly to the customer:

Embedded Billing Software

Many SaaS providers want to own the end-to-end customer experience, including the billing process.  In these scenarios, the billing features are presented to the customer inside the app’s Admin section.  For example, API calls collect the customer’s account balance, historical invoices, and recent payment activity. The embedded functionality can also be used to set up auto-pay with recurring ACH payments or to make a one-time payment.

Hosted Payment Pages and Billing Portals

Another option is redirecting customers to a separate website outside the SaaS application that hosts all the billing information.  The most popular option is a customer billing portal.  These portals typically are accessed with a separate user ID and password (or via single sign-on).  Customers can make a one-time payment via ACH or enroll in auto-pay with recurring ACH payments within these billing portals.

Use Payment Gateways to Transfer the Funds

Subscription billing software is used to enroll SaaS customers in autopay programs with recurring ACH payments, but it doesn’t actually transfer the funds.  The billing software needs to be connected to an external payment gateway to perform the ACH direct debit transaction with the customer’s bank.  The payment gateway could be managed by a traditional financial institution like JPMorgan Chase or Bank of America.  Alternatively, the payment processing could be handled by a specialized Fintech provider like Stripe, Braintree, Fiserv, or Heartland Payments.  These payment gateways are best known for processing credit card transactions, but most also can perform direct debits from bank accounts.

1) Connect to the Customer’s Financial Institution

One option is to verify the account ownership when the customer enrolls in recurring billing (e.g., self-service checkout, autopay registration).  The first step in the process usually allows the customer to select their preferred payment method.  The most common options are credit cards, digital wallets, and bank direct debits.

Bank Authentication

When the customer selects bank direct debit, the SaaS provider initiates a real-time connection to the customer’s bank.  Usually, a new window appears from the bank’s website that prompts the user to enter their credentials to access the account.  In addition to a user ID and password, the customer may also have to perform multi-factor authentication. Once the connection is established, the customer will be prompted to authorize the SaaS provider to debit recurring ACH payments each billing cycle until the subscription is canceled.

Connecting to the customer’s financial institution simplifies checkout in two ways. First, it allows the SaaS provider (their payment processor, to be more exact) to capture the necessary details for recurring payments—bank account and routing number. This obviates the need for the customer to type these details into a form on the website. Second, it provides real-time verification that the customer owns the account and is not attempting to fraudulently withdraw funds from another company’s account.

Below is an example of how Airtable enrolls customers in recurring ACH payments during the self-service checkout flow on its website.

See more examples of how SaaS providers capture payment methods in self-service checkout flows for PLG free trials.

2) Multi-Step Process with Microdeposits

Collecting Bank Account Details

The first step is to request the customer provide the details about the account they wish to use for the recurring ACH payments.  The customer is presented with a form similar to the one used for credit cards.  However, instead of collecting the sixteen-digit card number, expiration date, and security code, the form will capture the account holder’s name and bank account details. 

The specific details to be captured will vary depending on the payment gateway being used and the SaaS provider’s risk tolerance.  At a minimum, the ABA routing number and bank account number will required.  Some payment processors will request additional details.  Common examples include the name of the financial institution, the bank account type (checking or savings), ownership (business or personal), and the name listed on the account (business or individual).  

Collecting the banking details is important.  The SaaS provider cannot collect the payment without the routing number and the account number.  However, before the recurring billing can commence, the customer must also prove that they own the account and authorize the direct debit transactions.

Posting Microdeposits

The most common way to prove account ownership is through microdeposits.  The payment processor will make small deposits to the customer’s account.  For example, a $0.02 and $0.07 deposit might be made to the account.  The customer must verify the amounts deposited to confirm ownership of the account.

An alternative approach is to make a $0.01 deposit and tag it with a unique verification code in the description on the account statement.  For example, the descriptor code might read “GHX62Y.”  The customer can use the code to verify ownership of the account.