What Is an ACH Payment?
Automated Clearing House (ACH) payments are a way of transferring funds between accounts at different banks. They’re an increasingly popular alternative to wires or paper checks because they’re faster, cheaper, and more secure. Most transfers settle within one or two business days, though some banks take anywhere from three to 10 business days. It was specifically designed for recurring payments like utility bills, mortgage payments, or employee paychecks. But it’s now becoming common for all kinds of businesses to offer this option to their customers, especially among high risk merchants or those in industries with restrictions on which payment methods they can accept.
The Benefits of ACH Payments for Small Businesses
ACH payments are easy to set up so even if you aren’t a high risk merchant, it’s usually still worth making sure you can offer this option. That’s because they offer a lot of benefits that other methods don’t. Plus, customers usually appreciate having as wide a variety of options to choose from as possible.
No Risk of Insufficient Funds
ACH payments are a direct transfer of funds from your customer’s account to your account. If the customer doesn’t have the funds in their account, the transfer will be denied immediately. So there’s no risk of insufficient funds. The payment will only go through if the funds are definitely there.
Low Chargeback Risk
ACH fraud is rare, representing less than 1% of payment fraud. So that alone means you’re unlikely to deal with fraudulent payments via this method. But even if it didn’t have the lowest fraud rate, the typical fees for a return or reversal is much lower than a credit card chargeback. Instead of $20 to $100 per chargeback as you would pay on a credit card chargeback, ACH chargebacks typically cost just $5 to $25. Between significantly fewer chargebacks and lower fees per chargeback, this payment method is much less risk for merchants than other methods.
Lower Fees in General
Card payments come with interchange rates ranging from 1% to 3.5% plus the fees added on by your payment processor. On average, ACH payments cost about $0.29 per transaction, but fees can range from about $0.25 to $0.75 per transaction if the processor charges a flat fee or 0.5% to 1% per transaction if it charges a percentage rate.
Convenient for High Risk or Cash Only Merchants
High risk merchants can face even higher credit card fees than usual because card issuers like Visa and MasterCard tend to bump them up to a higher interchange rate if they fall under one of the categories the issuers deem high risk. Other merchants, such as cannabis dispensaries, can’t accept credit card payments at all because Visa and MasterCard won’t allow them. In both cases, ACH payments can be an important way to give your customers more payment options while keeping your transaction costs down. In a cash only business, customers don’t have to make an extra stop at an ATM—or pay the high fee at a third-party ATM in your store—to get cash for their purchase. Their purchase also won’t be limited to the amount of cash they currently have in their wallet. Even for high risk merchants who can accept card payments, incentivizing customers to use ACH payments can allow you to avoid the high and unpredictable fees associated with card payments.
How to Accept ACH Payments
To start accepting ACH payments from your customers, you will need a business bank account. Then, find a payment processor that can process ACH payments so that you can add that option to your checkout process. When a customer is ready to check out, they can select ACH from the range of payment methods offered and then input their bank account number and routing number. With that information, you can initiate the ACH request and pull the funds directly from their account. If you’re accepting payments in person, you can typically use Zelle or a similar platform for instant bank-to-bank transfers between the customer account and your business account. While you don’t need a merchant account or a payment processor to do that, you can only use this route when both your bank and the customer’s bank partner with the same platform. While Zelle is among the most popular, it’s not the only platform banks partner with. Moreover, not all banks allow business accounts to use Zelle or whichever platform they partner with. So it helps to have ACH payment processing set up through your payment processor as well so that you don’t have to worry about compatibility issues.
Frequently Asked Questions About ACH Payments for Small Businesses
Here are some of the most frequently asked questions merchants have about ACH payments.
How do I accept ACH payments?
To accept ACH payments as a small business, all you really need is a business bank account with a bank inside the ACH network, which you likely already have since all banks in the United States are required to be in the network. Then, you just need to add the option to your checkout process. Your payment processor or ecommerce service provider can help you set up the correct processes for gathering the bank information needed and initiating the ACH request.
Can I receive ACH payments for free?
Depending on the method you use, you might be able to receive ACH payments for free. However, if you’re accepting them through your payment processing system, you’ll likely pay some fees for the service. Still, these fees are typically much lower than the transaction fees associated with card payments.
How do I get customers to pay through ACH?
ACH payments are convenient for customers as well as businesses, especially for recurring payments. But if you’re having trouble getting customers to set up recurring ACH payments, try offering a discounted rate for those that do. As long as the discount offered is lower than the amount you’re saving in transaction costs, you’ll still be saving money in the long run.