Everything You Need To Know About Accepting ACH Payments

If you’re reading this article to learn more about accepting ACH, you’re in the right place. Maybe you’ve seen us mention ACH payments in other articles, or you’ve read one of our introductory ACH articles. Or perhaps you just know that accepting ACH is a good business practice.

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.

This article focuses specifically on how to accept ACH payments for small businesses. Read on to learn what you need to know about how to set up ACH payments so you can start accepting them.

To clarify and define what ACH payments are, however, we need to distinguish ACH payments from eChecks.

eCheck VS ACH Payments: What’s The Difference?

eChecks and ACH payments are often confused with each other, but they’re not the same thing. Read our article The Complete Check Payment Guide for more details, but the short answer is that eChecks are just electronic versions/images of paper checks. This isn’t the case with ACH payments, which 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.

Regarding ACH payments vs eCheck, the two 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, when comparing ACH vs eChecks, just remember that ACH and eChecks are two completely different things governed by very different laws.

Why Accept ACH Payments For Your Small Business?

Know that accepting 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’re wondering how to receive ACH payments on a regular payment schedule from your customers — whether they be monthly subscriptions or even installment payment plans of just a few payments — ACH transfers might be ideal.

Let’s list the pros and cons of accepting ACH payments.

Pros of Accepting 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. (Read about interchange fees in our Complete Guide To Interchange Rates.)  This 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.
• 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 be 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 (though banks still have control over the ultimate payout schedule, and there are often extra costs involved in expedited payments). Since ACH processing is 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. However, other factors may affect when you’ll actually get your funds — factors we’ll discuss in a bit.
• 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.

Cons of Accepting ACH Payments

• You May Wait Several Days To Receive Your Funds: We mentioned that credit card processing fund transfers and ACH transfers take the same amount of time. However, 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 your ACH service provider to find out what’s possible for your situation.
• ACH Transfers Are Only Processed From Monday To Friday: If you try to start an ACH transfer on a weekend day, your bank won’t submit the request until Monday.

Indeed, our ACH Pros list is much longer than our ACH Cons list.

This reflects the reality that there are lots of upsides to accepting ACH payments, while the downsides are limited to the sluggish speed with which ACH transfers are made and the fact that banks only process ACH transfers during business days.

High-Risk ACH Processing Options

If your business is high-risk and you want 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 by accepting eChecks.

• Accepting eChecks Can Get You Closer To Processing ACH Payments: Since an eCheck works exactly like a paper check from a processing standpoint, it’s easier for you to get approved and continue to take eChecks for as long as you wish to take that risk. And if your business’s record for having customers who don’t bounce checks is good, you can use that record to eventually get yourself an ACH processing account and maybe even a credit card processing account.
• Accepting ACH Will Benefit Your High-Risk Business: Just as with any other business, ACH payments are the most cost-effective way for a high-risk business to debit its customers’ bank accounts for payments.

Circling back to eChecks, if you’re a high-risk business interested in taking eChecks, you’ll need to work with a high-risk processor. Sometimes, they call this eCheck service “high-risk ACH processing,” but be aware that they are probably referring to eChecks. Ask the processor in question about it if you’re unsure.

Our article What Businesses & Industries Are Considered High-Risk? can help you determine whether your business is high-risk and will explain the consequences if it is.

How To Accept ACH Payments

Being able to accept ACH payments can boost your revenue and expand your customer base, particularly for US-based businesses whose customers make recurring purchases. If you’re wondering how to accept ACH payments, look no further — we’re going to detail the steps necessary for you to do so.

1. Choose an ACH processor
2. Request authorization for ACH billing from your customers
3. Set up and submit the ACH payment

Step 1: Choose An ACH Processor

In order to process ACH transactions, you’ll need a dedicated ACH processing account. 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 services, 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 comparison charts as a jumping-off point.

Step 2: Request Authorization For ACH billing From Your Customers

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).

Step 3: Set Up & Submit The ACH Payment

Once your customer has authorized the ACH transaction and provided the information necessary to authorize the payment, you can then process the ACH transaction and accept the payment. There are several ways to do this, which we’ll get into in the next section.

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.

Setting Up ACH Payments: The Basics

As I mentioned, 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 with a webform for collecting ACH payments within your website. It may take some 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 trying 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.

If this all seems like a lot, don’t worry!

Services and technologies have recently arisen 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 accepting ACH payments are only getting better and faster with time.

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. Just 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 Automated Clearing House fees & processing with any provider, be sure to ask about the following ACH charges 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: This ACH fee is 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 transaction fees & 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 and want to accept ACH payments free, 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 look into setting up ACH payments with a payment processor offering ACH accounts and pay ACH processing fees to enable this functionality.

With 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 bill pay, you’re typically using an ACH credit payment to authorize a one-time payment, though the bank may sometimes choose 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 receive 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 accept ACH payments online and/or in person.

Accepting ACH Payments: FAQs

How To Tell If ACH Payments Are Right For Your Business

Whether you do the majority of your business transactions online, over the phone, via snail-mail, or in-person, 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, think about looking for an ACH payment 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 if accepting ACH is right for your business:

• Online ACH Processors
• Alternative Payment Methods
• Zelle For Business

Whatever you decide to go with, we wish you good luck and hope you find the perfect balance of payment acceptance methods for your business.