Everything You Need To Know About Accepting ACH Payments

You’re reading this article because you want to know more about accepting ACH. Maybe you’ve seen us mention ACH payments in other articles, or you’ve read one of our introductory ACH articles. Maybe you just know that accepting ACH is a good business practice. Whatever the reason, you’ve come to the right place. In this article, we’ll dive deeper into the world of ACH payments, showing you where to find payment processors, suggesting ways your business can use ACH payments to save time and money, and discussing what’s a fair price to pay for the service.

Before we get started, though, let’s quickly distinguish ACH payments from eChecks. They’re not the same thing, but they’re often confused with each other. We have an article giving more details about eChecks, but the short answer is that eChecks are just electronic versions/images of paper checks. Banks follow the same general procedure processing eChecks as for paper checks, a procedure they’ve followed for a few hundred years already. The main difference between now and then is that, instead of bank clerks meeting in a tavern to settle the day’s money exchanges, they now do all this electronically and don’t use paper at all.

ACH payments do not follow the check settlement procedure. The ACH procedure is completely automated and, as of this writing, is batched and settled three times a day on bank working days. There are two types of ACH payments: ACH Credit and ACH Debit.

• 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 and must be initiated by your customer each time.

ACH and eChecks are often confused with each other because the eCheck procedure can use ACH transfers at two different points in the procedure:

1. At the last step of eCheck processing where the banks formally transfer money to each other to settle funds, the banks typically use an ACH transfer. (There’s another system called CHIPS that’s sometimes used as well.)
2. eChecks can be converted to an ACH debit transaction by the merchant and sent through the ACH transaction flow instead of the eCheck transaction flow, if the merchant gives proper notice that the check will be converted. The notice usually uses the broad term electronic funds transfer, but in actual practice, we see processors use an ACH debit pull most often.

Despite the above, just remember that ACH and eChecks are two completely different things governed by very different laws. This way, you won’t be confused.

This article focuses on ACH payments only; specifically, on ACH payments for small businesses. Keep reading to find out everything you need to know to start accepting ACH payments.

Why Accept ACH Payments For Your Small Business?

Before we get into more details, you should know that ACH isn’t appropriate for every type of small business or for every situation. Any time you want to have the money in your hands before the customer walks out the door, you should use another type of payment. However, if you want to set up a regular payment schedule with your customer — be it a monthly subscription or even an installment payment plan of just a few payments — ACH transfers might be the way to go.

Below are some of the advantages of taking ACH payments:

• Typically Cost Less Than Debit Or Credit Card Processing: 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. While both debit card payments and ACH payments draw money from a checking account, debit card transactions can be processed through a special debit card network or the regular credit card network, which means they 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 by using ACH instead of debit cards.
• Typically Free To Customers: While this is up to the individual bank, banks typically offer a free bill payment service to customers. Usually, this service uses ACH transfers, so it shouldn’t bee too hard for you to encourage your customers to pay you directly from their bank account.
• Funding Times Are Comparable To Credit Cards: ACH transactions are batched three times per day. This means it’s possible to receive the ACH payment on the same day it was sent. Of course, just because this is possible doesn’t necessarily mean you’ll actually be able to use the funds the same day. Individual banks still have control over the ultimate payout schedule, and there are often extra costs involved in expedited payments. Nevertheless, the process is definitely quicker than it used to be. And, since ACH processing is basically the primary money transfer mechanism used by US banks, any credit card processing fund transfers take exactly the same amount of time as an ACH transfer. It’s just that, with credit cards, some processors will front you the money so that you can indeed get “paid” the next day while, with ACH payments, you must wait until your bank actually releases the funds, which might take several days. If funding time is of concern, talk to your bank and the provider of your ACH service to find out what’s possible for your situation.
• Ideal For Recurring Payments: Your customers can set up an ACH debit payment one time and never think about it again, and you can receive payments on time without having to send repeated reminder invoices.
• Know Status Of Transaction Faster: Because ACH is all electronic, you’ll know very quickly whether the payment was declined/bounced, so you can contact your customer or even stop shipment or pause work on the project so you can prevent a business loss.
• Create An Electronic Record That Can Be Auto-Synced: In the busy world of a small business owner short on time, any automation helps.
• Shorter Period For Chargeback Initiation: Customers typically have only 90 days to dispute an ACH payment whereas they can have up to 120 days to dispute a credit card payment.
• Rules For Reversals (Chargebacks) Are Stricter: In fact, 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.
• Increased Reach To Consumers Who Can’t/Won’t Use Credit Cards: Not everyone can be approved for a credit card, and some people even elect not to have one. For them, debit cards are the preferred payment choice. In fact, according to a 2018 study by the credit card processor TSYS, debit card use outnumbers credit card use. Making ACH payments available to these consumers gives them an additional way to pay without using credit cards and might increase your sales.
• Suitable For B2B Transactions: When businesses pay businesses to purchase inventory items, for example, the payment often can get pretty large. ACH payment can handle these larger numbers. In fact, as of March 20, 2020, the same day ACH dollar limit has been increased to $100,000 per day. These should be more than enough to pay for most inventory items any business might need.

How To Accept ACH Payments

Finding An ACH Processor

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

• Merchant account provider or credit card processor
• Business bank account provider
• Dedicated ACH processor
• All-in-one processor + payment gateway (e.g. Stripe)
• 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 bank routing number in order to authorize the payment (for recurring payments, you’ll only need to do it the first time). 

There are several ways you can take ACH payments:

• Virtual Terminal: For 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. 
• 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, so it’s worth a try to nudge your customers towards ACH. 
• Automatic Invoicing: Even if your customer elects not to set up recurring payments that automatically allow you to withdraw from their designated ACH payment account, you can send them automatic invoices that give them the option to pay by ACH. Ask your automatic invoicing provider if they provide ACH payment services, and if so, set up the invoice per their instructions.

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.

High-Risk ACH Processing Options

If you’re a high-risk business that wishes to take ACH payments, you might not be able to do this in the beginning. Setting up an ACH processing account requires its own underwriting process with stringent guidelines, similar to merchant accounts for credit card processing. For example, NACHA rules dictate that you must keep your ACH chargeback ratio below 0.5% and your ACH return rate below 15% or else risk account closure.

With high-risk businesses, therefore, you might have to start elsewhere—with eChecks. Since an eCheck works exactly like a paper check from a processing standpoint and the rules related to a bounced check apply (i.e. you, as a merchant, get stuck with it), it’s easier for you to get approved and continue to take eChecks for as long as you wish to take that risk.

If your business’s record for having customers who don’t bounce checks is good, then you can use that record to eventually get yourself an ACH processing account and maybe even a credit card processing account.

If you’re a high-risk business interested in taking eChecks, then you’ll need to work with a high-risk processor. Sometimes, they call this eCheck service “high-risk ACH processing,” but just be aware that it’s very likely eChecks that they mean.

How Much Should You Pay for ACH Payment Processing?

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 to 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.
• Monthly Minimum Fee: In lieu of or in addition to a monthly fee, you may be charged a minimum processing fee for 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.

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.

Does Free ACH Payment Processing Exist?

If you have a business checking account, then some form of free ACH payment processing does exist for you. However, if you want to take mass volume automatic payments for, e.g., subscriptions (i.e. ACH debit), then you’ll have to set up an ACH account with a payment processor and pay certain fees to enable this functionality.

At most banks, mobile deposit and bill pay are free features of a business checking account. When you do a mobile deposit of a check, you’re actually converting the paper check to an eCheck which, eventually, will be pulled as a one time ACH debit payment. When you do a bill pay, you’re typically using an ACH credit payment to authorize a one-time payment (sometimes, the bank might elect to send out an eCheck instead). Most banks do not charge extra for these services on top of the monthly service fees associated with maintaining the checking account itself (which you can often get waived if you satisfy certain deposit criteria). There typically is a daily or monthly transfer limit associated with these free services, so be sure to read the fine print at your bank before you take advantage of these free transfers.

However, if you wish to use ACH payments on a more massive scale, with maybe hundreds or thousands of customers paying via ACH every month, then you’ll want to set up a formal ACH account with a processor and take care of your ACH payments that way.

How To Tell If ACH Payments Are Right For Your Business

Whether you primarily do business online, over the phone, via 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 as a choice in a vast variety of payment options available to their customers. Here are some additional articles that might help you decide: online ACH processors, alternative payment methods, or even Zelle as a form of payment. Whatever the case, we wish you good luck and hope you find the perfect balance for your business.