As an entrepreneur, you have every reason to want to get paid in as many different ways as possible in order to maximize your profit margin. One payment method that you may not be familiar with is automated clearing house (ACH) payments. Take some time to learn about ACH payments to see if incorporating them into your business model makes sense.
ACH payments explained.
Because they are processed automatically, ACH payments take a lot of the human error and guesswork out of accepting customer payments. ACH payments are remitted directly into your business account from your customer’s account electronically. Sent in batches of several payments at a time, ACH payments fall into two different categories:
- ACH debits are generally “pulled” or withdrawn directly from the customer’s checking account on a prescheduled basis. Examples of these types of payments include recurring those made for utility bills, fitness club memberships, and rent.
- ACH credits are “pushed” or sent from one account into another. Many businesses use ACH credit transactions to set up direct deposit payments for their employees since this method eliminates the need for paper checks and reduces the potential for human error.
Advantages of accepting ACH payments.
ACH payments offer several advantages to your business, especially if you frequently accept checks. These include the following:
- Saving time and resources such as paper, fuel, and ink;
- Heightened security;
- An increase in on-time payments due to automated billing;
- Receiving timely notifications about the status of a payment;
- Easy integration with your pre-existing accounting software;
- Faster processing time with your bank.
- Cheaper than credit cards because you do not pay interchange or access fees.
ACH payments and disputes.
ACH payments have additional advantages when it comes to chargebacks. That’s because the rules for ACH chargebacks are much stricter than those for traditional credit cards, which is to your benefit. Customers can only dispute ACH payments in the following situations:
- The authorization was revoked or the transaction was never authorized;
- The amount charged differs from the amount that was authorized;
- The transaction was processed before its authorization date.
Unlike credit card chargebacks in which a customer can dispute the transaction for no other reason than that they are unhappy with the product, ACH payments can only be disputed if one of the above situations occurs. In addition, credit card customers generally have up to 120 days to dispute a charge. In the case of ACH payments, the process must be initiated no more than 60 days after the charge first appears on the customer’s statement.
The cost of ACH payments.
What you will pay to accept ACH transactions depends on your merchant account provider. However, the following are costs that may be associated with these payments (note that risk ACH payments for high-risk businesses generally cost more):
- A flat fee of anywhere from $.20 to $1.50 per transaction;
- A percentage fee ranging from 0.5 percent to 1.5 percent;
- Setup fees;
- A monthly fee ranging between $5 and $30, which you may be asked to pay in addition to your other merchant account fees;
- Equipment fee for renting items such as digital cameras or check scanners;
- A batch fee of usually less than $1 per batch;
- Chargeback/reversal fee of $5 to $25 per instance;
- Add-on checks verification fee. This is particularly worth your while if you are in an industry where chargebacks are common and will be receiving high-risk ACH payments.
Since ACH pricing structures vary widely according to industry and merchant account provider, it is definitely in your best interests to do your homework and shop around to find the provider that best fits your needs. In other words, don’t just pick the least expensive option without understanding what it does and does not provide.
Should you accept ACH payments?
Now that you have learned about what ACH transactions are and some of the advantages they offer, you may be wondering if it makes sense to start offering them to your customers. Honestly answering the following questions can help you to reach an intelligent decision:
- Do you have many customers who would benefit from recurring billing or do you anticipate having them in the near future?
- Will you save money in credit card processing fees if you switch many of your customers to ACH?
- Do any of your customers prefer to pay with paper checks and/or are they wary of online payments — preferring automatic withdrawal via e-check?
- Do you process B2B transactions?
If you answered “yes” to one or more of these questions, it may well make sense to begin accepting ACH payments.
How to begin accepting ACH payments.
There are several different kinds of companies that can help you to initiate your ACH payment journey should you decide that it is right for you. These include the following:
- Merchant account providers/credit card processing companies;
- Business account providers;
- All-in-one processors that combine ACH with your payment gateway for e-commerce;
- The provider of your accounting software;
- A dedicated ACH processor.
If you are already signed up with a merchant account provider, check with them first to see what kind of deal they can offer you as an existing customer. In some cases, you might already be paying for ACH capabilities without even realizing it.
Depending on your customers and the type of business you own, you might quickly find that ACH is your go-to way to make and receive payments. On the other hand, many enterprises simply add ACH to their already-existing suite of payment options. Whichever situation you might be in, this kind of automated processing can help to take your business to the next level. Just be sure to review all of your options and select your provider carefully.
