What Are The Benefits Of ACH? The Pros & Cons For Small Business

The processing fees of ACH are generally much lower than that of credit or debit card payments. ACH transfers through financial institutions are often free, while third-party services may charge a small percentage fee or a flat rate.

How big are the savings?

When customers use a credit card to pay their invoices, that payment is processed by a third-party payment processor or through your business’s merchant services account. You pay a percentage of each transaction to your processor, and the industry average ranges from 1.5%-3.5% of the total transaction amount, according to Bankrate data.

The costs of depositing a paper check or taking payment via ACH instead of wire transfer can be significant too. Receiving a check can cost your business as much as $4 in fees, according to Nacha, the governing entity of the ACH network.

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. And that doesn’t even account for the time it can take for a paper check to travel through the mail to be processed by your accounts receivable team.

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.

Compared to other payment options, ACH looks pretty good. Many business banks charge fees for cash deposits or don’t accept cash at all, for example, while others place limits on the number of checks you’re allowed to deposit each month.

Any payment method is susceptible to fraud, and traditional payment methods such as paper checks are especially vulnerable. Although ACH fraud is becoming more frequent, payment via ACH is almost 30% less likely to involve fraud than check payment, according to a fraud report created by the Association for Financial Professionals and backed by JPMorgan Chase & Co.

Increased security also means fewer disputes and penalty charges.

ACH payment types include the option to both credit and debit accounts, making ACH ideal for recurring transfers. 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.

Paying by ACH is good for customers, too. When customers send you a check, they can’t be sure when (or if) you’ve received the check or when the money will be taken from their bank account. ACH payments eliminate much of that uncertainty.

The number of bank transactions processed by ACH payments is growing steadily and reflects an increasing customer preference for safe, non-traditional payments.

Nacha requires ACH payments to be processed by the next business day. Note that ACH processing does not happen on banks’ non-business days, such as weekends and holidays. (The receiving bank may also hold funds for a limited time before making the money available in your account.)

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.

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.

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.

ACH’s authorization requirements mean it generally isn’t a good fit for basic, one-off retail transactions.