A genuine understanding of how Point of Sale (POS) is different from Automated Clearing House (ACH) can help you understand why sometimes POS purchases are charged at a higher or lower rate the automated clearing house purchases. It can also help you understand that POS purchases have been around a lot longer than automated clearing house purchases. You may be a bit confused at first to learn that both POS and ACH purchases can be processed electronically. However when you understand the POS purchases can be physical cash purchases, unlike automated clearing house purchases which have to be processed electronically, you gain a better understanding of the basic differences. So what are the basic differences between POS transactions and ACH transactions?
Point of Sale Transactions
As the name suggests, a point of sale transaction is any transaction that takes place either online or in a retail store. This transaction can be a cash, check or credit transaction. The key component in a POS transaction is that the transaction is completed almost immediately. Point of Sale transactions quite simply are those transactions that take place immediately upon receipt of goods and/or services.
POS systems are often used to track inventory. In the small business encyclopedia of Entrepreneur, the definition of POS systems takes into consideration that most businesses process transactions electronically.
The main defining attribute of POS transactions are that they are complete the moment goods and services are exchanged. In some cases, POS transactions are more readily accepted. In other cases, POS transactions are not as readily accepted, because the location doesn’t accept cash or their online component doesn’t process transactions immediately. A good point to remember is that POS purchases are usually physical purchases where the customer receives the product or service immediately upon receipt of cash or credit.
Automated Clearing House Transactions
Automated Clearing House transactions are batch transactions of electronic payments that go through an electronic network set up by the Federal Reserve to regulate monetary flow. At the National Automated Clearing House Association, the network regulates electronic transactions for over 10,000 financial institutions via 13 Regional Payment Associations and through direct membership. The process, which began in 1974, is fairly simple and straightforward. Batches of electronic transactions go through a secure and integrated electronic network to the Federal Reserve or the designated Clearing House. They are then processed electronically and sent to their respective recipients (depository institution). Processing usually only takes a day or so.
The difference between POS transactions and ACH transactions is that POS transactions are complete the minute the customer purchases a product and/or service. ACH transactions can still vary from one to three days due to the fact that the transactions must first be “batched” electronically, before they are sent to the Clearing House and/or the Federal Reserve.
There are pros and cons to each method of payment. Point of Sale purchases have been around for a very, very long time. Customers like being able to have their product and/or service immediately without having to worry if their credit cleared. On the other hand, ACH transactions have become the norm as businesses like the quick and easy processing that lets customers have their product and/or service now rather than waiting until they have ready cash. Both methods have their security risks with personal information being stolen at an alarming rate.
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Electronic payments are here to stay. As modern technology grows, ACH transactions become faster and more easily accessible. Security concerns have been readily addressed by the Federal Reserve making electronic payments secure both with POS purchases and ACH transactions. So the question still remains, how is Point of Sale different from Automated Clearing House? The answer is there is increasingly not much difference at all as many stores continue to convert to electronic payments and steer clear of cash payments.
