With 27 billion payments in 2020 in the US, the automated clearing house network (ACH) is to be a popular choice for sending and receiving payments.
If your business receives many online payments, and especially if you take recurring ones, ACH may benefit you in more ways than one.
The habit of relying on cards or even checks may be preventing you from upgrading the way you run your business.
This post will show you how ACH payments can help you earn more and spend less on fees and paperwork, so you can decide whether to implement them.
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When choosing methods of accepting payments, business owners should consider the fees associated with each option.
ACH transactions are known for their low transaction fees, making them an ideal choice for small businesses.
Tracking payments you receive is a crucial element of small business financial stability. For best results, you should complement that practice with a careful examination of your expenditure.
All businesses, from one-person operations to companies with dozens of employees, are always on the lookout for ways to save money without compromising quality.
One of the ways to cut down the costs is to give your customers an option to pay with the method that is the most cost-effective for you.
A benefit of ACH payments is that their processing fees make them comparatively cheaper than other popular methods, such as card payments.
Credit card processing fees usually range between 1.3% and 3.5% of the payment, depending on the card processor.
Some ACH processors charge a flat rate, but those who take a percentage ask for 0.5% to 1.5% per transaction—a fee lower than that of credit cards.
ACH payments are also more cost-effective than non-electronic payment options. The Wall Street Journal reports that it takes anywhere from $4 to $20 to process a check, based on its price and shipping.
Accepting ACH payments benefits your customers as well. Vendors often increase the price of their products by a percentage they pay the processor to make a profit.
However, if you list ACH payments as a non-service-fee option, you’ll encourage customers to use a method which also allows you to pay lower fees.
This way, you’ll be able to keep your products and services more accessible.
Recurring payments allow your customers hassle-free payments and grant businesses a reliable source of income. Using automated recurring ACH payments, you can set up the process once and continue collecting payments effortlessly.
Automation is the next big thing for small businesses. What used to be reserved for large enterprises is now available to companies of all sizes.
Small businesses can save time by automating emails, accounting, customer support, and more. If you can spend less time doing tasks a machine can do on its own, why wouldn’t you?
Nearly all business leaders (99% of them) extol the virtues of automation. They cite increased speed or a reduction in manual errors, among other things. When it comes to automating recurring payments, you can expect even more benefits.
Introducing recurring payments makes the payment process easier for your customers, increasing their satisfaction with your business.
Not having to think about payments each month improves your relationship with your clients, which could increase customer retention rates up to 50%, as FreedomPop experienced.
Scheduled payments also benefit the business. Once the client sets up the payment schedule according to the terms you’ve set, you can rest assured their following payments will arrive timely.
A system for automating payments unburdens your administrative staff because it does all the invoicing and payment communication without the need for additional human input.
The ACH system is especially beneficial for businesses that offer products or services which require recurring payments.
If you know you’re going to sell twelve monthly memberships to a customer, you don’t want to pay the expensive credit card transaction fee that many times.
Businesses that operate on a recurring model should encourage the customers to choose ACH payments. You can offer a discount to clients paying with ACH, as Array Digital did, and still end up with profit compared to what you would achieve with other payment methods.
If you want to get paid faster, accepting ACH payments is a good idea.
It’s true that ACH transactions used to have a reputation as a slow payment method because they used to be processed in batches, meaning it could have taken up to 74 hours to process a payment.
However, luckily, the National Automated Clearing House Association (Nacha), the organization that oversees the ACH network, recognized the need for faster payment processing, with almost two-thirds of customers expecting instant or same-day payment processing.
Same-day ACH payments were rolled out in 2016, when thirteen million of these payments were processed.
The service has steadily grown in popularity, with more than 347 million same-day ACH transactions in 2020.
So, ACH payments are processed faster than non-electronic payments, and ever since same-day ACH processing was introduced in 2016, they have been neck and neck with other e-payment methods in terms of payment processing speed.
Still, not all ACH payments are same-day by default, so it’s up to you whether to offer this option. We suggest that you do because it will allow you to collect payments faster, as well as possibly generate more revenue.
The authors of The Point, Fiserv’s official financial blog, see same-day ACH as an opportunity for financial gain:
“Not only do these changes help satisfy consumers’ expectations for faster payments, they also introduce a new revenue opportunity if you offer same-day ACH transactions as a premium service.”
Now that ACH transactions are processed as swiftly as other popular payment options, there is no reason to miss out on the benefits they give you.
They are also convenient for customers, which reduces the chances of potential friction and ensures your invoicing cycle runs smoother and faster.
Simple payment submission, fast processing time, and recurring payments make ACH the right choice for your business.
ACH further boosts the positive impact of those elements by helping you control how money leaves your business.
After all, receiving payments fast isn’t enough to improve your cash flow on its own.
You could work with the fastest payment processor out there, and that still wouldn’t mean a thing for your profitability if the payment options you offered were too complicated for your customers to use.
One of the reasons why so many customers choose to pay with ACH lies in the simplicity of submitting those payments.
And the more you simplify your payment process, the more likely customers are to pay you on time. Only then can you count on a reliable revenue stream and manage your cash flow.
Don’t forget that cash flow includes the funds going out of your company too. ACH payments are helpful there as well.
For instance, there’s a number of reasons for disputing a check, such as an irregular signature or a stale date, among others.
Even credit card payments can be disputed fairly easily. In fact, many companies struggle with friendly fraud, an occurrence where a customer tries to gain money back from a legitimate transaction by filing a chargeback.
However, ACH payments can only be disputed for several reasons.
- The transaction was not authorized.
- The funds were debited earlier than authorized.
- The transaction was for the wrong amount.
In other words, the ACH network makes it more difficult for scammers to illegitimately pull the money you’re relying on. This is how ACH protects your cash flow.
On top of that, ACH gives you greater control of your money. As a small business, you’re probably paying suppliers and other vendors.
Since ACH payments can be scheduled to process on the date they are due, you can keep the funds in your account longer.
When you combine these protective features with the guaranteed profit you achieve with recurring payments, you can see how ACH could benefit the cash flow of your business.
As we’ve said before, processing ACH payments requires fewer resources than processing non-electronic payments.
You need no ink, no paper, no envelopes. ACH payments also help you save up on arguably the most important non-renewable resource: time. They do this by cutting down on processing time significantly.
Let’s approach the subject from the financial perspective.
Did you know that it takes $30 to process a paper invoice, compared to only $3.5 for an automated electronic invoice? It’s no wonder businesses are switching to e-invoicing.
Therefore, use ACH payments to cut down on costs related to purchasing and handling paper. This could result in savings of up to 80%.
Customers are also moving away from paper invoices, with 78% of them preferring digital payment methods. This is especially true for younger generations that put greater emphasis on environmentally friendly business practices.
Convincing customers to ditch paper for ACH shouldn’t be too difficult.
Still, if you decide to focus on environmentalism, keep in mind that research suggests that customers respond better to subtle wording than to direct appeals to their altruism.
For instance, you should avoid saying “Thank you for choosing ACH to save the trees—you are a green hero!”
Instead, it would help if you complemented the environmental angle by also stating what your customer personally gains, such as the ability to access bills at any time.
Source: Ecological Economies
Bypassing all paper-based billing in favor of ACH also allows you to manage human resources better. You’ll need fewer people—and less time—to prepare, print, deliver and sort the invoices.
For instance, Subject Matter, a creative advocacy firm, started implementing ACH payments during the pandemic. Their only regret is that they didn’t do it sooner.
Their CEO Nicole Cornish says that asking clients and vendors to pay with ACH freed up from six to eight hours a month that the company previously spent on payment processing.
Cornish advises all companies wanting to transition to ACH not to be afraid of asking the customers to start using this payment method.
Since processing payments with ACH lets you skip manual invoicing and billing, it also grants you higher accuracy, resulting in fewer resources being spent on rectifying the mistakes.
After all, manual invoicing is a risky process. When your employees have to enter billing information by hand, the likelihood of errors increases.
Errors then prevent customers from paying on time, reflecting negatively on your cash flow. In fact, more than half of late payments occur because of incorrect invoices.
If you’re wondering how many businesses use such an ineffective system, you’d be surprised to learn that 54% of companies enter invoice details manually.
Thirty-four percent of companies use software such as character recognition, but they still have staff check the documents for accuracy and errors.
You could easily replace this lengthy process with ACH to process payments.
Unfortunately, errors and slow pace are not the only challenges of an inefficient billing process. Other common issues include lost or missed invoices and a high number of discrepancies.
Moreover, ACH lowers the possibility of errors on two ends; the customers’ and yours.
A digitalized payment method means customers will never forget to sign a check and make it valid.
In short, electronic billing reduces the rates of incorrectly composed invoices due to human error and makes the billing process more effective overall.
The ACH technology may have emerged in the 1970s, but it’s still going strong, with the number of users rising each year.
Low ACH transaction fees, combined with the fewer resources this payment method requires, can help you save time and improve your cash flow.
Recurring payments and same-day payments will help your customers manage their finances better.
If you decide to implement ACH into your business, don’t hesitate to ask your customers to switch to this payment method. You could even incentivize them with a discount and still stay in the black.
Handling a new payment method may sound scary, but Regpack can help you integrate ACH into your business seamlessly. Get in touch, and we’ll take care of the rest!