One of the biggest benefits of Automated Clearing House payments (ACH payments) for small business owners is cost. It is not only free for customers, but it charges a lower transaction fee than all other fee-based payment systems - including credit cards. Add in its benefit of recurring payments capability, and you can save significant amounts of money each month. Plus, the higher the volume of orders, the less you pay.
If you have been thinking of accepting or sending ACH payments, knowing how ACH pricing works helps you capture the most advantages. In this article, we review ACH payment costs and compare it to other payment methods.
The cost of ACH transactions varies depending on several factors but is often much cheaper than the fees associated with card payments. In some cases, the price is free through banks for senders and receivers (included within standard banking fees) - but in most cases, a bank or third-party payment processor (TPPP) charges transfer fees. Examples include:
Compared to other payment methods like credit card payments and wire transfers, ACH is significantly less expensive, but it doesn't stop there. Rates come down further based on the number of transactions over a set time period. Still, fees can range between providers, and not all services are equal, so be sure to shop around - and shop carefully. Many companies use hidden fees to gain higher profits.
Now let's directly compare ACH against other forms of payment to see how the financial benefits stack up. We will also review other benefits of ACH worth considering and discuss some downsides of ACH, so you can make the clearest decision for each payment.
Pros:
Lower Cost: Credit cards networks charge interchange fees and assessment fees, whereas ACH is simpler by being bank-to-bank, avoiding these fees.
Credit card processing fees range from 1.3% up to 3.5%, whereas ACH costs around $0.26 and $0.50 per transaction when run as an ACH credit. You also get the option of paying at a lower percentage (0.5 to 1.5%), a flat monthly fee, or a fee per batch. You may be charged a $3 fee per transaction if the banks are different. You will also need to add the payment processing fees from your payment provider.
Debit card payments are like ACH in that the transactions are bank-to-bank, but they often move through the same network a credit card uses, resulting in similar fees as credit cards.
ACH is also free for customers, while credit cards require an annual fee and charge monthly interest.
Greater Payment Thresholds: Credit cards have low dollar thresholds from $2,500 to $6,000 per month. ACH transactions have a much higher limit of around $25,000 per purchase, though there may be a limit of transactions allowed per month.
Fewer Payment Issues: The lower threshold of a credit card restricts the amount the customer can buy and increases the chance the customer will reach his or her monthly max, resulting in a declined purchase. Credit cards have expiration dates and require payment, both of which can lead to a sale being "declined" if not properly managed.
In addition, ACH results in more reliable payments. ACH connects directly to the customer's bank account and requires a minimum balance before a transaction can be placed. If your customer relies on credit, they may have a greater risk of insufficient funds or having an expired card, creating barriers to ongoing, regular payments for goods and services.
Added Safety: Credit cards and credit card numbers are stolen, which increases the chance of customers contesting unclear charges. ACH has much stronger restrictions that create more assurance and less hassle for you on the backend.
Faster Payment to You: For ACH debits (when customers push the payment to you or you send a direct deposit to an employee), the order must be processed by the next business day. ACH credit transactions (where you withdraw money from the customer account, such as monthly), the timeframe may be similar to a card but can be sped up with the option of Same-Day ACH for faster delivery time.
Cons:
Safety: You need a customer's full bank information for ACH, which can fall into the wrong hands. Still, you only need the information at the initial setup.
Monthly Limits: ACH also has a restriction on the number of transactions per month.
Perks: Credit cards also offer financial benefits to customers like airlines miles and dining points.
Pros:
Lower Cost: Wire payments are another form of direct payment via electronic transfer. They offer real-time movements of money between accounts, but they are more expensive to send and receive than ACH electronic payments. This payment method costs customers between $15 to $30, and those receiving them (for instance, your business) need to pay around $15. Some banks offer free wire transfers, but this isn't common.
Reduced transaction risk: Wire transfers can't be reversed. If a scrupulous person obtains bank information and forwards a wire transfer to a hidden account, the money can't be recovered. ACH has a verification process that allows for cancellation.
Cons:
Slower Payment: Wired payment requests are processed in real-time, whereas ACH typically averages 3-5 days. Same-day ACH transfers exist, but since the money is sent at set times of the day, an order can fall after banking hours, delaying the arrival until the next business day.
Lower Dollar Thresholds: Wire transfers can be done at higher amounts – upwards of $100,000. ACH has a lower threshold of $25,000 per day, and fewer transactions are allowed each month.
More Restricted Participation: Wires can be used for international transfers. ACH works only through US banks with network participation. Still, ACH is very popular, with over 25,000 banks using it.
Pros:
Lower Cost: The median cost of a check transaction cost is $3, whereas ACH can cost only cents.
Increased Safety: Checks can be lost, stolen, or forged. ACH transactions must go through an encrypted network that requires tighter approvals.
Faster Payment for You: The check settlement procedure can take longer than ACH, a week or more in some cases - particularly for dollar amounts exceeding $10,000.
More Flexibility: If your customers want to use paper checks, you can still process them through ACH as an electronic check (eCHeck) at a lower fee and with faster approvals.
Cons:
Payment Limits: ACH has limits to how much you can deduct at one time.
ACH vs. Cashier's Checks
Pros:
Ease of Payment: Customers must go to a bank to receive a cashier's check, reducing the chance of an instant sale and not allowing for the freedom to easily change a sale (for example less freedom to up-sell). There can be issues depositing this type of payment through ACH, requiring you to drive to a bank for a physical deposit.
Lower Cost: A cashier's check costs a customer $10 to $15, much higher than ACH.
Added Safety: Cashier's checks can be lost or stolen.
Cons:
Transaction Limits: There is a transfer limit per customer per day and per month through ACH.
ACH vs. Cash
Pros:
Added Safety: Cash can be lost or stolen in the business or while in route to the bank. This includes theft by employees.
More Accuracy: Cash must be counted by hand correctly.
Added Convenience: Cash must be physically deposited in a bank, taking time away from your business. Standing in line at the bank is not the best use of time.
Cons:
Fees: You are charged a fee for transactions.
Other Benefits of Using ACH for Your Business
Pros:
Cons:
If you work with a banking institution, you may avoid some clearinghouse fees, but in most cases, there is likely a fee for ACH. The fee aids with network participation and covers network administration fees to ensure safeguards and oversees the network.
How to Accept ACH Payments at Your Small Business
ACH offers powerful benefits that can boost your bottom line. As a payments solutions provider, BNG Payments helps you take advantage of them. We provide software and hardware to connect you to the ACH network and your bank or TPPP. We even offer TPPP services at competitive prices, giving you one source for all your payment needs.
Let us show you what we can do. Contact us to find out more.
