What You Need to Know About Accepting ACH Payments
When it comes to payment acceptance, both businesses and consumers like having options. More payment options means more opportunities to do commerce, and merchants especially like payment options that don’t cost too much to process. One such payment option we haven’t gone into too much detail about before on Merchant Maverick is ACH, or Automated Clearing House payments.
The good thing about ACH payment processing vs. credit card payments for merchants is that the fees to accept this type of payment are lower than credit card transaction fees. In fact, more businesses are accepting ACH transactions than ever— according to NACHA, a total of $38.7 trillion was transferred via ACH in 2013, an increase of almost 5 percent from the previous year.
If you’re considering accepting ACH payments or e-checks, here’s what you need to know.
Table of Contents
What is ACH?
- Originally started as a system to replace paper checks, ACH allows businesses to receive an electronic payment directly from a buyer’s checking account.
- ACH payments are also commonly known as e-checks.
- This type of electronic fund transfer is commonly used for direct deposit payments from employers, as well as monthly payments to service providers, such as utilities.
- ACH payments are increasingly used for online payments and point-of-purchase payments, as well as B2B (business-to-business) and P2P (person-to-person) payments
- Learn more about the specific types of ACH payments here. PayPal also has a good resource explaining ACH in fine detail.
How is ACH different from debit and credit transactions?
ACH bypasses the card networks, and therefore bypasses interchange and assessment fees. This generally makes ACH far less expensive than card payments.
While both debit transactions and ACH draw money from a checking account, debit transactions are processed through card networks, and thus are prone the same types of fees as credit cards.
How much does it cost to process ACH payments?
The cost to process ACH payments depends on your merchant account provider, or whichever entity you use to process ACH payments.
Some ACH processors charge a flat rate, typically ranging from $0.25 to $0.75 per transaction. Others charge a flat percentage fee, ranging from 0.5% to 1%. For merchants with a larger transaction size, the per-transaction fee (not percentage) is generally the cheaper option. Some providers will also charge an additional monthly fee, which varies.
How can I accept ACH?
You can process ACH payments/e-checks using a merchant account provider or a separate entity — for example, a bank or a standalone ACH processor. Here are some providers you can use to process ACH payments.
- Dwolla (see our review) — This is an excellent way to accept ACH payments online. Dwolla is a non-integrated option, meaning it exists separate from normal processing transactions. (Think of it like PayPal, except way less expensive for merchants and it deals only with ACH payments.) With Dwolla all transactions are free! To receive payments you need a Dwolla account (which is also free), but your customers don’t necessarily need a Dwolla account to send you money. They can simply use their online banking credentials to log in via “Dwolla Direct,” which creates a sort of “lite” account. It’s low-friction and doesn’t require the customer to look up their account number and routing number.
- PayJunction (see our review) — This processor prides itself on going paperless, so it’s no surprise that PayJunction actively markets ACH processing solutions. It will cost 0.75% per transaction, which is way less than credit cards cost to process. They also offer services like electronic signature capture to boost efficiency and security.
- PaySimple (see our review) — This is a payment processor similar to PayJunction, but they charge a flat fee for ACH, $0.55 per transaction. While they don’t use interchange-plus as their default pricing plan, I’d encourage you to ask about it if you choose to use them for card payment processing.
- Forte Payments (see our review) — Another ACH-intensive provider, and one of the few that has ACH built into their mobile app. The cost to process ACH with Forte varies depending on your plan. If you use the no monthly fee plan, it will cost 2.9% + $0.25 to process ACH (the same as for credit cards). But if you use their mid-tier plan (which comes with a monthly fee) e-checks only cost $0.25 per transaction to process, which is a great deal!
How are ACH payments processed?
The three main ways to your business can process checking account payments via the ACH network are as follows:
- Check scanner — 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. To use this, you will have to have an ACH processing account.
- Virtual terminal — For keyed-entry payments like telephone order and mail order 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, and you stand to save extra because you have just converted a long-term customer to using a less expensive payment method.
- Website payments — It might take a little bit of encouragement to get your customers to look up their account and routing numbers 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 costs as little as $0.25. The savings really add up, so it might pay off to get creative in order to influence your customer’s payment decision. Again, Dwolla does a great job of reducing friction in this process, so that’s something to consider.
ACH Payment Processing Time
The main disadvantage of ACH transactions the amount of time it could take for you to get paid. While different services offer different payout schedules that affect how long it will take you to get paid, ACH will almost always be slower than credit card payment processing. Many credit card processors offer next-day processing as standard, and some can even do instant deposits. For ACH payment processing, you’re looking at 3-5 days for payout in most cases.
In closing, whether you primarily do business online or in person, you might want to consider accepting ACH payments, which electronically transfer funds from a customer’s checking account. ACH payments cost less to process than credit or debit card transactions and are easier to process than traditional paper checks, as there is no need to forward checks to the bank and wait to find out which ones bounced. They are also ideal for collecting recurring monthly payments.
If you’re looking for a standalone ACH payment processor, consider Dwolla, which charges a two-tiered flat rate of $0 for any transaction under $10, and $0.25 for any transaction over $10. Check them out here. If you need a full-fledged payment processor with ACH processing, PayJunction has a highly rated suite of payment services (merchant account, payment gateway, virtual terminal, etc.), that includes ACH processing. As we mention in our rundown of the best small business credit card processing companies, Helcim offers ACH processing at just $0.25 per transaction and $25 per month.
While your considering how to save on payment processing, check out our comparison chart to see what some of the best processors are charging!