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Everything You Need To Know About Accepting ACH Payments

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When it comes to payment acceptance, both businesses and consumers like having options. More payment options mean more opportunities for commerce, and business owners especially appreciate options that carry relatively low overhead. One such payment option is ACH, or Automated Clearing House payments.

ACH is a type of electronic fund transfer (EFT) between financial institutions, often replacing paper checks. Accepting payments and dispersing payments are both possible with the ACH system. ACH is commonly used in direct deposits for payroll, as well as for recurring payments to service providers, such as utilities. ACH payments are also increasingly used for online payments and point of sale payments, as well as B2B (business-to-business) and even P2P (person-to-person) payments.

Although ACH processing has been around since the 1970s — and even the term “clearing house” sounds rather old-fashioned — more businesses are currently accepting ACH payments than ever. According to NACHA, the rule-setting body for the ACH Network, a total of $51.2 trillion was transferred via ACH in 2018. That’s an increase of almost 10 percent from the previous year.

If you’re considering accepting ACH payments at your business, we’ll fill you in on what you need to know!

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What Is An ACH Payment?

First, let’s cover a few quick facts and demystify some jargon from the world of ACH payments. Then, we’ll describe how ACH differs from other common modes of payment acceptance.

  • An ACH payment allows businesses to receive an electronic payment directly from a buyer’s checking account.
  • Large numbers of ACH transactions from multiple sources are batched and then processed together.
  • ACH payments can be processed as one-time payments, or set up on a recurring billing schedule.
  • An ACH payment is different from an ACH (direct) deposit, although it uses the same processing network. Direct deposits are for payroll, tax refunds, annuities, interest payments, etc.
  • ACH payments can be classified as either ACH Debits or ACH Credits.
    • ACH Debits “pull” or “withdraw” funds from your customer’s account, and are typically set up to occur automatically on a recurring schedule. Examples: utilities, rent, mortgages, car payments, fitness memberships, insurance premiums.
    • ACH Credits “push” or “send” funds from your customer’s account to yours.
  • ACH-type payments occur at the domestic level, with each country operating separate networks. The ACH Network operates in the United States.
  • NACHA (formerly called the National Automated Clearinghouse Association) sets the operating rules for the ACH Network, while the actual processing of transactions is ultimately handled by the Federal Reserve and The Clearing House Company. Banks, credit unions, merchant account providers, and all other participating entities must also abide by the NACHA rules.

ACH VS Paper Checks

Businesses that accept a lot of paper checks are often great candidates for ACH processing. Here are a few advantages to converting to ACH acceptance:

  • Save time
  • Save paper, ink, fuel, and other resources
  • Increased security
  • Increased on-time payments with recurring ACH billing
  • Create an electronic record that can be auto-synced with other systems (e.g., accounting software)
  • Know the status of the transaction faster (whether the payment was declined/bounced)
  • Banks typically prioritize ACH payments over paper checks when making funds available

ACH VS Credit Cards & Debit Cards

Credit Cards

ACH bypasses the credit card networks and therefore bypasses wholesale interchange and assessment fees. This generally makes ACH far less expensive than credit card payments.

Debit Cards

While both debit card payments and ACH payments draw money from a checking account, debit card transactions are processed through card networks, and thus are prone to the same types of fees as credit cards. Particularly if you’re accustomed to being charged the same flat rate for debit card and credit card transactions with your card processor, you’ll see a lot of savings per transaction over debit cards by using ACH.

Dispute Policy & Time Frame

The rules for reversals (chargebacks) are more strict for ACH transactions. In other words, an ACH transaction is considered quite final compared to a card transaction. There are only three reasons your customer can initiate a reversal for an ACH payment:

  • The transaction was never authorized or the authorization was revoked
  • The transaction was processed on a date earlier than authorized
  • The transaction is for an amount different than what was authorized

This is very different from a credit or debit card transaction, where a chargeback may be initiated simply because the customer was unhappy with the product or service provided. Additionally, customers have up to 120 days to initiate a credit or debit card chargeback in most cases. With ACH, the time limit is typically just 90 days (or 60 days after the charge shows up your statement).

To sum up these points (and add a few more), here are advantages to ACH payments over credit and debit card payments:

  • Lower cost to process
  • Convert your recurring customers to a less expensive processing method
  • Reduce declined recurring payments due to expired card information
  • Harder for customers to chargeback
  • Shorter period for customers to initiate chargebacks
  • Increase reach to consumers who can’t or won’t use credit cards.
  • Offer an additional payment method your competition may not offer
  • Less fraud exposure

ACH VS Wire Transfer

Although wire transfer is another type of electronic funds transfer, the two systems are quite different. Wire transfer is used for higher value, smaller volume payments than ACH. While ACH transactions are grouped and processed in batches, wire transfers are processed as individual, real-time transactions. For this reason, wire transfer is used for time-critical payments and cannot be reversed. Of course, wire transfers are also not limited to just domestic transfers like ACH.

The main advantages of ACH over wire transfer are:

  • Free for customers
  • Less expensive for merchants

Terminology: ACH Or eCheck?

Most often, the two terms are used fairly interchangeably. We’re using ACH as a catch-all term in this article, but “echeck” might be easier to wrap your mind around if you’re accustomed to regular checks. Use either one, and people in the industry will know what you’re talking about.

You’ll most frequently see sources distinguish between ACH and echeck when referencing high-risk merchants. High-risk businesses often have a hard time finding a merchant account for credit card processing. Similarly, some high-risk businesses are not eligible for traditional ACH processing but may qualify for a separate echeck processor that can mitigate some of the risk. There are specialized echeck processing systems that add layers of protection for merchants in industries with a propensity for large numbers of bounced checks or chargebacks, for example. One common technique is for the echeck processor to use its own aggregated account to process and clear the funds, and then submit a normal ACH transaction on your behalf to your business bank account for settlement. At any rate, these processors may be treated as separate “echeck” processors or may be referred to as “high-risk ACH” accounts.

For more specific information on high-risk ACH and/or echeck processing, we recommend talking to a reliable high-risk merchant account provider.

How Much Does ACH Processing Cost?

The cost to process ACH payments depends on your merchant account provider, or whichever entity you use to process ACH payments. As with credit card processing, ACH pricing discussions tend focus on the rate. However, you should be aware that other costs may be involved depending on your service provider.

ACH Processing Rates

Some ACH payment providers charge a flat fee, typically ranging from around $0.20 to $1.50 per transaction. Others charge a percentage fee, ranging from around 0.5% to 1.5%. These figures can be higher for high-risk merchants. Sometimes, both a percentage and a flat fee are charged. For merchants with larger average transaction sizes, a per-transaction fee (not percentage) is generally the cheaper option

Note that some merchant account providers may include ACH processing as an add-on service, and may even charge zero transaction fees. In these cases, you’re probably already be paying a monthly fee and/or transaction fees for your merchant account to process credit cards. All the better if ACH transactions are included at no extra charge!

Other ACH Fees

When discussing ACH processing with any provider, be sure to ask about the following fees in addition to the processing rate:

  • Setup/Application Fee: Watch for any one-time setup fees, particularly if this is your first time working with the company. If ACH will simply be an add-on service for you, try to get any setup fees waived.
  • Monthly Fee: This may be a separate fee just for using ACH, or ACH processing maybe be included as part of your monthly fee for a merchant account. Expect a range of $5-$30 per month.
  • Equipment Fee: You may end up purchasing or renting equipment (like a check scanner or camera) if you still deal with paper checks. This may be a one-time cost or included in your monthly fee.
  • Monthly Minimum Fee: In lieu of or in addition to a monthly fee, you may be charged a minimum processing fee or ACH.
  • Batch Fee: Charged each time ACH transactions are batched out, similar to credit cards. Should be well under $1 per batch.
  • ACH Return Fee: Charged if the transaction doesn’t go through for any number of reasons. Often ranges from $2-$5 per return.
  • ACH Reversal/Chargeback Fee: Charged if a customer disputes a transaction. Typically higher than a return fee, anywhere from $5-$25 per instance.
  • High Ticket Surcharge: ACH was originally intended for relatively low ticket processing, and some ACH account providers may charge extra for processing high ticket items (e.g., over $5000).
  • Expedited Processing Fee: While same-day ACH processing is becoming more common, some providers may still charge extra for quick processing.
  • Check Verification & Check Guarantee: These are add-on services (often optional) that can increase your ACH processing rate or incur a side fee. The higher risk your industry, the higher the likelihood these services will be important for you.

The important takeaway here is that ACH pricing can be set up with all kinds of different pricing structures. Be sure to shop around for the best overall deal, not just the best ACH processing rate.

How To Accept ACH Payments

How To Prepare Your Small Business for 2018

Finding An ACH Processor

The following types of companies can help you start accepting ACH payments:

  • a merchant account provider or credit card processor
  • a business bank account provider
  • a dedicated ACH processor
  • an all-in-one processor + payment gateway (e.g. Stripe)
  • an accounting software provider

If you’re already signed up with one of these entities, you can start by inquiring about adding ACH payments to your existing service package. Be aware that you may undergo a separate underwriting process for an ACH processing account. If you’re starting from scratch, feel free to check out our top merchant account or accounting software providers as a jumping-off point.

How Are ACH Payments Processed?

Your ACH account provider should be able to provide you one or more methods for processing ACH payments, depending on your business type. Whichever method(s) you use, you’ll need to collect important information such as the customer name, bank name, account type (checking or savings) account number, and account routing number in order to authorize the payment — of course, only the first time for a recurring payment. 

The three main ways your business can process checking account payments via the ACH Network are as follows:

  • Check Scanner/Imager Or Reader: Even if you accept a check in-person, you can use a check scanner to transform the paper into a digital ACH transaction. Just run the check through the scanner to deposit it remotely.
  • Virtual TerminalFor keyed-entry payments like telephone order and mail order (MOTO) payments, you can type in the account information at your computer to process the ACH payment. You can also use this to set up recurring payments. Some customers will feel more comfortable having a recurring payment come directly from their bank accounts rather than a credit card.
  • Website Payments: Your account provider can set you up with a payment gateway that includes a webform for collecting ACH payments within your website. It might take a little bit of encouragement to get your customers to look up their account and routing numbers to enter into a form at checkout, especially when they’re accustomed to paying with services like PayPal in just a few clicks. But processing a $100 payment with PayPal costs you about $3, and processing with ACH can cost just a few cents. 

You’ll also need a way to verify the account information of your customers, particularly if your ACH payments are occurring via a website. One common method is to set up one or two micro-deposits to check the account exists.

If this all seems like a lot, take heart. In recent years, additional services and technologies have come onto the scene that help further automate both the ACH authorization and account verification process. Your ACH account provider should be able to connect you with the precise services and information you need. Meanwhile, the systems for processing ACH payments are only getting better and faster with time.

ACH Payment Processing Time

Best Time Tracking Integrations

Speaking of speed, you’re probably wondering by now how long this all takes!

ACH transactions are batched three times per day. Since March 2018, it has been possible to process and settle virtually all ACH payments — ACH debit and ACH credit — on the same day. This is aptly known as Same-Day ACH.

Now, just because it’s “possible” to settle ACH payments within one day doesn’t necessarily mean you’ll see your the funds available the same day as the ACH payment was initiated. Individual banks still have ultimate decision power for payout schedules, and there are often extra costs involved in expedited payments. Nevertheless, the process is definitely quicker than it used to be.

NACHA has set up three new rules to be rolled out gradually in coming years that will improve upon Same-Day ACH. This will include extended time for banks to submit same-day ACH files and quicker processing within a given day.

So, is ACH processing slower than credit and debit card processing? Well, many credit card processors offer next-day processing as standard, and some can even do instant deposits. For ACH payment processing, you could still be looking at 3-5 days in some cases until your funds become available. Our advice is to talk to your bank and the provider of your ACH service to find out what’s possible for your situation.

Is ACH Processing Right For You?

Whether you primarily do business online, over the phone and snail-mail, or in-person, you might want to consider accepting ACH payments that electronically transfer funds from a customer’s checking account. Below are a few questions that will help you determine if ACH processing is right for you. If you answer “yes” to even just a couple of them, it may be time to start looking for a provider.

  • Do I already have recurring billing customers?
  • Do I have customers who could be set up with recurring billing?
  • Can I convert some of my recurring credit card billing users to recurring ACH payments?
  • Will the fees for ACH processing be offset by the money I save in credit card processing fees?
  • Do I serve a demographic that is wary of credit and debit card use, especially for online payments?
  • Do I serve a demographic that is unable to use credit cards?
  • Do I already accept a lot of paper checks?
  • Do I process B2B transactions?
  • Am I a high-risk business currently ineligible to accept credit and debit cards?

For some merchants, ACH can end up as the go-to method of payment acceptance, while others will simply add ACH to a vast menagerie of payment options. Whatever the case, we wish you good luck and a discerning eye in evaluating your choices.

Pay just $0.24 per ACH transaction with our top pick.

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Rose Holman

Rose Holman

Writer
Rose Holman is a writer, blogger, and educator from Portland, OR with an MA in Teaching from Western Oregon University. She enjoys educating SMB owners about the complicated (and notoriously sketchy) world of payment processing. Since starting at Merchant Maverick in 2016, she has also added eCommerce software to her areas of expertise.
Rose Holman
Rose Holman

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14 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    Rhea

    In the state of Illinois is it required to have an ACH authorization form filled out with all of the customers bank info? It just seems like requiring that is more of a liability since then you have their info on paper. Does anyone know?

      This comment refers to an earlier version of this post and may be outdated.

      Jessica Dinsmore

      Hi Rhea,

      To be honest, this isn’t something we’ve ever encountered before, so it may be a bit outside of our expertise. I’d rather not give you an answer that I’m not too certain about. If you happen to figure this out on your own, please let us know what solution you find so we can learn how to answer something like this in the future.

        This comment refers to an earlier version of this post and may be outdated.

        John Toston

        Hey Rhea,

        Most all states require an authorization form signed, however, this could pose a liability if that authorization with the account information was not stored properly. You can upload this authorization form in a secure file system and/or utilize a way to tokenize the bank account information on the back end with a digital authorization form.

        Respectfully,
        John Toston

          This comment refers to an earlier version of this post and may be outdated.

          Mike F

          Regarding processing ACH payments in person (i.e. check scanner), how do you avoid the payer having to first verify ownership of their account? Entering their online credentials w something like Plaid nor verifying microdeposits which can take days seems practical for the check scanner scenario.

            This comment refers to an earlier version of this post and may be outdated.

            Tom DeSimone

            Hi Mike,

            The usual protocol is to ask for ID and, when possible, to make a copy of the ID as proof. It’s not a perfect system, but it’s not perfect with credit cards either.

              This comment refers to an earlier version of this post and may be outdated.

              Mike Jinior

              Are there any other ACH gateway that anyone is aware of?

                This comment refers to an earlier version of this post and may be outdated.

                Chloe Bahal

                Hi Mike,

                You might want to check out Stripe.

                  This comment refers to an earlier version of this post and may be outdated.

                  Lillian Angelo

                  I have asked banks, friends and other of HOW TO PROVE PERSON OR COMPANY CHEATED ME OUT OF MONEY BECAUSE ‘FIRST EXPERIENCE’ IN ACH CHECK SYSTEM WAS USED. THERE IS NO ENDORSEMENT OF SIGNATURE/BUSINESS ACCEPTANCE. SO I AM OUT OF $100.00 WITHOUT SERVICE. No proof of their exceptance. HELP, I WANT MY FUNDS BACK.

                    This comment refers to an earlier version of this post and may be outdated.

                    Chris

                    Interesting and enlightening read. Do you think it is possible to bypass the use of merchant accounts altogether by just using your own business checking account with a payment gateway such as Authorize.net? I am currently looking into this.

                      This comment refers to an earlier version of this post and may be outdated.

                      Jad Chahine

                      Hi Chris,

                      Would be interested in hearing if you were able to bypass ACH. Please feel free to email me at jad (at) moulah (dot) com.

                      Thanks!

                      Jad

                        This comment refers to an earlier version of this post and may be outdated.

                        Ravi

                        i need a payment gateway for my india based business. i am not having any one in US
                        so if any one is able to help me out then reply me or mail me

                          This comment refers to an earlier version of this post and may be outdated.

                          Shannon George

                          Hi there! Thanks for reading! We’ll get back to you about this shortly.

                            This comment refers to an earlier version of this post and may be outdated.

                            Tom DeSimone

                            Hi Ravi,

                            Check out Instabill. They can usually help.

                            Good luck!

                              This comment refers to an earlier version of this post and may be outdated.

                              Jason

                              Nice to hear that 25¢ and no percentages for an ACH transaction is a great deal. That is what we charge at GivingTools (www.givingtools.com) and our main issue with potential customers is them not believing that the rates are legit, because they are so low. Thanks for the confirmation!

                                This comment refers to an earlier version of this post and may be outdated.

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