In every business transaction, both the merchant and the customer like having options. Different methods translate to more opportunities for the trader, and flexibility for the buyer. As such, merchants especially prefer payment channels that don’t cost too much to process. An example of these is Automated Clearinghouse Payments (ACH).
The best thing about ACH compared to credit cards is that the fees for accepting payments are much lower. Consequently, start-ups and small businesses are processing ACH now more than ever. If you’re thinking of accepting ACH or e-check payments, here’s all you need to know.
What is ACH?
ACH is an e-commerce payment system that allows merchants to receive funds electronically, directly from a customer’s checking account.
How can you accept ACH payments?
To process ACH transactions, you will need to partner with a suitable merchant account provider. EMB, for instance, offers ACH processing to its clients at friendly rates and no set-up fees.
The three ways you can process ACH transactions are:
- Check scanner
If a buyer pays with a paper check, you can use a scanner to transform it into a digital ACH token and deposit it remotely into your processing account.
- Virtual terminal
For keyed-entry transactions like telephone and mail orders, you can type in a client’s account information into a virtual terminal to process the ACH payments. Some customers feel more comfortable when recurring fees come directly from their bank accounts than through credit cards.
- Website payments
It might take some nudging to get your clients to shift from easy payment services like PayPal to online ACH transactions, but in truth, the cheaper fees are worth the effort. Processing a $100 PayPal transaction, for instance, costs $3, while with ACH, it costs as little as $0.25. As a result, many merchants are getting creative to influence their clients’ payment decisions.
ACH vs. credit card transactions
Both ACH and credit cards are electronic funds transfer (EFT) channels. However, ACH moves funds from a customer’s checking account into yours directly. It, therefore, bypasses card networks, and their interchange and assessment fees. This makes ACH processing far less expensive than card transactions.
Service companies like plumbers, accountants, and attorneys can benefit more from ACH than electronic cards. ACH streamlines the recurrent billing process by reducing transaction costs and saving time.
On the flip side, sales completed with ACH don’t guarantee funds to the merchant but are merely a request to the client’s bank to release the money. Such transactions are processed in batches and usually take a few days. ACH requests can also be rejected for reasons like insufficient funds or a closed account, and you won’t know until several days later.
For this reason, many retailers choose credit cards over ACH. Credit cards use a network, like Visa or Mastercard, to verify if a customer is within their credit limit. After the network approves the purchase, your payment processor is obliged to deposit the funds into your account.