How To Choose An ACH Processing Account For Your Small Business

ACH processing services can be obtained either as part of your merchant account or separately through a third-party provider. Obtaining an ACH account through your merchant services provider is generally the preferred option, as it eliminates compatibility issues and usually costs less overall. If you do decide to use a third-party ACH processor, you’ll want to ensure that it’s compatible with whatever payment gateway you’re using to accept online payments.

Because the funds for a transaction are being pulled directly out of your customer’s bank account, ACH transfers are inherently less risky than credit card payments. Consequently, they’re also less expensive to process than other payment methods. In fact, some of the best business banks offer no-fee ACH transfers if you have a business banking account with them. For businesses that only accept an occasional ACH payment, this can be a good option.

Most businesses, however, will need to sign up for ACH processing services either through their credit card processor or via a direct arrangement with a third-party ACH processor. In either case, you will usually have to pay an additional monthly fee for this service. Square is a notable exception, as it includes ACH processing with all accounts, with no monthly fee required.

Per-transaction processing fees can be charged either as a flat fee or as a percentage of the amount of funds being transferred. Be aware that you may also incur additional fees for cross-border transactions or currency conversion.

Here’s how typical ACH fees compare to other common forms of payment:

One common criticism of ACH processing involves funding times. The ACH network has been around for many years and is rather slow by modern standards. Funds from transactions typically take 2-3 business days to reach your bank account — and can take as long as five business days in some circumstances. Nacha does offer same-day ACH funding, but you’ll pay an additional fee for the convenience. Note that the newly-released FedNow real-time payments service offers nearly instantaneous bank-to-bank transfers. Once it’s more widely adopted, it may offer a viable alternative to ACH transfers.

ACH payments are inherently more secure than credit/debit cards or paper checks. However, you should still look for essential security features such as tokenization and end-to-end encryption to protect your payment gateway from hackers. Fraud detection features are also becoming increasingly popular, but often require an additional monthly fee to include with your account.

Although it can be hard to quantify, we’ve found that top-notch customer support after you’ve signed up with an ACH processor can be essential to keeping your account running smoothly. Problems with ACH transfers, while rare, will usually require telephone or email support to identify the issue and correct it. In researching possible choices for an ACH processor, pay particular attention to each company’s reputation for providing excellent customer support — and avoid companies that fall short in this area.

When you use ACH payments to receive or send funds, your small business can see these benefits:

• Lower Fees: The cost of receiving an ACH payment ranges from $0.26-$0.50 per transaction, according to Nacha (the governing body of ACH payments). That’s significantly less than the cost of receiving either a credit card payment or a check. Credit card payments typically cost between 1.5% and 3.5% of the total transaction amount, plus all the additional fees you’ll have to pay to maintain a merchant account. Even accepting a paper check can cost as much as $4 per check, not to mention the time required to make trips to the bank to deposit them.
• Faster Processing: ACH payments receive preferred funding from banks, meaning they are processed before check payments. Nacha also supports same-day ACH, under some circumstances, to move payments even faster. Business bank accounts typically hold funds from deposited checks for two or more business days. Accepting checks through the mail can take even longer.
• No Bank Limits: Many business bank accounts allow for unlimited electronic deposits, including ACH. If they do impose limits, those limits are probably relatively high and have lower fees for excessive transfers than for similar cash or check transactions. Many business banks charge fees for cash deposits or don’t accept cash at all. Others place limits on the number of checks you’re allowed to deposit each month.
• Increased Security: While any payment method is susceptible to fraud, paper checks are especially vulnerable. ACH payments are significantly less likely to involve fraud than paper checks, due to the entirely electronic means of transferring funds between accounts.
• Easier Recurring Payments: If your customers are on a subscription plan or paying for a monthly service, rent, or utility, ACH payments are easy, safe, and cost-effective. A bonus for customers is that when they set up recurring payments via ACH, they can eliminate late charges and the service disruptions that can happen if they forget to pay on time. As the vendor, you won’t have to worry about credit card charges being declined for any reason, including expired cards and over-limit transaction denials.
• Customer Convenience: ACH payments eliminate the uncertainty customers face as to whether you’ve received their check or when the money will be taken from their bank account. Compared to writing a check, it’s easy to make an ACH payment. With integrated banking and accounting functions, it can also be easier to track ACH payments compared to credit card transactions.
• Fewer Disputes:  Identity theft is the most common cause of credit card chargebacks, but that’s not likely to be a factor in recurring ACH payments. It’s also much more difficult for a payer using ACH payments to dispute a payment or decide to pull it off the network once it’s been finalized.

Although ACH transactions deliver strong benefits, there are some disadvantages as well. Factor these into your ACH planning:

• Cutoff Times: Nacha requires ACH payments to be processed by the next business day (which does not include weekends or holidays). ACH transactions are processed at set intervals every business day, using Eastern time. If you’re in a later time zone, your payments may not be processed until the next business day.
• Geographic Limits: Nacha’s ACH network operates only in the US, though Nacha has worked to support international electronic payments. Other countries have similar payment systems, but your bank may not allow international payments. If you do frequent business overseas, make sure you choose a bank or ACH processor that can accommodate your needs.
• Non-Sufficient Funds: A customer who pays via credit card is using the credit card company’s money, temporarily, to pay the bills. With ACH, the customer needs to have the necessary funds in their bank account or the ACH payment will not go through. When you’re counting on having that money available to your business, a failed ACH payment can cause disruption similar to the effects of a “bounced” check payment.