Everything You Need To Know About Setting Up & 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 our introductory ACH article on what ACH payments are. 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 that you can start taking them.

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

eCheck VS ACH VS EFT: What’s The Difference?

The terms “echeck,” “ACH,” and “EFT” often appear in proximity to each other. At times they may even appear to be interchangeable. In truth, there’s a lot of overlap, but they aren’t exactly the same thing.

EFT is short for Electronic Fund Transfer. It refers to the process of transferring money from one bank account to another electronically. ACH payments and echecks are both forms of EFTs. EFTs also include transactions such as wire transfers.

eChecks and ACH payments overlap as well. Both refer to specific processes where money is electronically moved from one account to another. eCheck, however, is designed to functionally mimic the settlement process of paying by a paper check, just without the paper check. At the completion of the echeck process, funds are typically transferred using an Automated Clearing House (ACH) transaction. In other words, echecks generally use ACH, but not all ACH payments are echecks. The ACH procedure is completely automated and, as of this writing, is batched and settled four times a day on bank working days.

To make things even more confusing, echecks can be converted entirely to ACH payments with enough notice.

Read our article, The Complete eCheck Payment Guide, for a more detailed look at how this works. In the meantime, here’s a helpful illustration.

Why Accept ACH Payments For Your Small Business?

Accepting ACH isn’t appropriate for every type of small business or every situation. You should use another type of payment whenever you want to have the money in your hands before the customer walks out the door. However, ACH payments can be ideal for monthly subscriptions or even installment plans of just a few payments. In some cases, they may be appropriate for one-off purchases.

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

Pros Of Accepting ACH Payments

ACH payments may not be quite as convenient as some other payment methods, but they’re still the primary way funds are moved between bank accounts in the US. Let’s take a closer look at some of the advantages.

• 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 and ACH payments draw money from a checking account, debit cards draw network fees that ACH payments don’t.
• Typically Free To Customers: While this is up to the individual bank, banks typically offer customers a free bill payment service. 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 four times per day. That 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 the same amount of time as an ACH transfer.
• 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 that 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. 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 payments can handle these larger numbers. The current same-day limit for ACH payments is $100,000 but is set to increase to $1 million starting March 18, 2022.

Cons Of Accepting ACH Payments

Our ACH pros list is much longer than our ACH cons list. This has much to do with the weaknesses of competing payment methods as the strengths of ACH.

Most of the criticisms of ACH have to do with its dependency on ancient (in tech terms) bank-dependent transaction protocols. Here are a couple of ways ACH shows its age and limitations.

• 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. With ACH payments, you must wait until your bank 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: Your bank won’t submit the request until Monday if you try to start an ACH transfer on a weekend day.

How Much Should You Pay To Set Up ACH Payments? ACH Fees Explained

ACH 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 Payment Processing Fees

Some ACH payment providers charge a flat fee, typically ranging from $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. However, in contrast to credit card transactions, many providers place a cap on ACH fees. This tends to fall somewhere around $5.

Some merchant account providers may include ACH processing as an add-on service and may not even charge any ACH processing fees. In these cases, you’re probably already 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 and 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 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. It 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 $5,000).
• 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 and 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?

ACH powers many different transactions within the United States, some of which incur fees and some of which don’t. The short answer to if free ACH payment processing is available is — if you only need to take an occasional ACH payment, you may be able to do so simply through your business checking account. In fact, when you mobile deposit a check, you’re actually converting the paper check to an echeck, which, eventually, will be pulled as a one-time ACH debit payment.

However, if you want to make ACH payments a regular feature of your business — particularly if you want to use them for subscriptions or memberships — then you’ll probably need to use a payment processor. Payment processors will typically charge a monthly or transaction fee (sometimes both) for ACH payments.

Types Of ACH Payments

By now, you should have a good sense of how broadly ACH transactions are used in the US. To drive the point home, let’s take a look at the different types of direct ACH payments and what some of their use cases may be.

Business-To-Consumer ACH Payments (B2C)

Non-cash transactions between businesses and consumers tend to be the domain of credit cards and debit cards. Nevertheless, ACH payments have long had a niche as a convenient and inexpensive way to process recurring payments for subscriptions and memberships.

While using ACH at POS isn’t common, it is sometimes used for eCommerce transactions. Additionally, ACH payments power a lot of digital wallet transactions. Let’s say you accept Venmo for transactions. In that case, ACH transactions will probably be involved in getting money from the customers’ account into your business account. As the costs of credit card transactions rise, ACH-based alternatives may be a way for businesses to save money while offering convenience to customers (particularly younger customers).

Business-To-Business ACH Payments (B2B)

ACH payments are a common way to settle invoices between businesses without generating a ton of extra paperwork. With same-day ACH processing available, it can also be a quick and convenient way to settle accounts. That, in turn, can help businesses smooth out their cash flows.

Further, ACH transactions can accommodate much higher value transfers than credit cards. At present, the limit per ACH transfer is $100,000, but that will be rising to $1 million starting in March 2022. Fewer transactions mean fewer transaction fees.

High-Risk ACH Payment Processing

If your business is high-risk and you want to take ACH payments, you might not be able to do this initially. NACHA ACH rules dictate that you must keep your ACH chargeback ratio below 0.5% and your ACH return rate below 15% or 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 get yourself an ACH processing account eventually 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 have a high-risk business that’s 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.

Is Accepting ACH Payments Right For Your Business?

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, consider looking for an ACH payment provider.

• Do I already have recurring billing customers, or am I planning to introduce memberships or subscriptions?
• 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 on credit card processing fees?
• Do I process B2B transactions?
• Is my high-risk business currently ineligible to accept credit and debit cards?

What Do You Need To Accept ACH Payments?

At a minimum, you’ll need a business bank account to accept ACH payments. Depending on the features and volume you’re looking for, there may be other things you’ll need.

There are several ways you can take ACH payments:

• Virtual Terminal: For keyed-entry payments, such as 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 web form 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 such as 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.
• Invoicing Service Provider: 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.
• Payment Gateways: If you plan on taking ACH payments online, you’ll probably need a payment gateway. Payment gateways transmit data between the point of transaction (typically for eCommerce transactions) and payment processors. Some of these services provide support for ACH payments. Depending on your payment processor, a payment gateway may or may not be included in your basic service.

How To Set Up ACH Payments: The Basics

Step 1: Choose An ACH Processor

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
• Digital wallets

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 ACH payment information. Such information includes the customer’s name, bank name, account type (checking or savings), account number, and bank routing number 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 your customers’ account information, 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.

Next Steps For Accepting ACH Payments

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.

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.

Common Questions About Setting Up ACH Payments