If your business takes a lot of online payments from customers, you’ve probably heard that ACH billing is a great option for both you and your customer.
It is often cheaper, faster, and more convenient than other forms of payment like checks, cash, and even credit and debit cards.
Nevertheless, you might still be on the fence, wondering if ACH billing is right for your business.
After all, every company is different. Their needs and their customer behaviors vary.
In this post, we’ll walk you through a few things you should consider before pulling the trigger and accepting ACH payments from your customers.
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ACH Payments Have Lower Processing Fees Than Credit Card Payments
ACH Billing Has Different Processing Times
ACH Payments Require Separate Merchant Accounts
ACH Billing Requires Authorization
ACH Billing Relies on Different Dispute Policies Than Credit Cards
Is ACH Billing a Fit for Your Business?
According to the National Automated Clearinghouse Association (Nacha), there has been a steady increase in ACH payment volume over the last decade—in fact, the value of ACH transactions in the third quarter of 2021 is double that of the same quarter in 2020.
One reason for the popularity of ACH payments is the relative cheapness of the processing fees compared to other forms of payment.
Many credit card processors charge a percentage of the transaction—ranging from 1.3% to 3.5%—plus a per-transaction rate of 20 to 50 cents, which can really add up.
ACH payments often cost much less, usually a flat fee of under a dollar per transaction.
For instance, say your customer pays you $200 via credit card. If your credit card processor charges you 2.9% + $0.30 on each transaction, your fee would be $6.40. So you would only keep $193.60 of the total bill.
If they pay by ACH, you’re only likely to be charged a flat fee of $0.60. Now, you’re keeping $199.40 of the total bill.
For a transaction of this size, the $5.80 difference seems negligible at best.
And since swiping a credit card is much more convenient for the customer than handing over their bank’s routing and account numbers, many businesses that deal mostly in smaller transactions choose to stick with credit and debit payments.
Conversely, let’s consider a business that regularly charges its corporate clients not in the hundreds, but in the thousands.
On a $20,000 bill, that 2.9%+$0.30 credit card processing fee comes out to $580.30. That flat $0.60 ACH processing fee looks a lot better now, doesn’t it?
In short, the larger your average billing amounts, the more likely it is that accepting ACH payments will make a big improvement to your bottom line.
Of course, the final cost for both types of transactions depends on the rates charged by the ACH and credit card processors you’re using. Finding a payment gateway that charges reasonable rates is essential regardless of which types of payments your business accepts.
The processing time for a standard credit card transaction is typically 2-3 days. ACH transfers, on the other hand, usually take 3-5 days.
This difference is due to the way the ACH payment process works:
- The customer provides their banking information (including their routing and account numbers) and authorization for the payment.
- The customer’s bank (the Originating Depository Financial Institution, or ODFI) debits the customer’s account and sends the funds through the ACH operators to the Federal Reserve System.
- The Federal Reserve System processes ACH requests in batches. It sends the ACH files to the merchant’s bank (the Receiving Depository Financial Institution, or RDFI).
- The RDFI processes the transfer and deposits the funds into the merchant’s bank account.
Because ACH transactions depend on banks and the ACH network to batch-sort requests and transfer funds between financial institutions, processing can take up to a few days.
Moreover, since ACH transactions only process on days when the Federal Reserve is open, ACH settlements are also limited to non-holiday business days.
However, ACH payments are faster than they used to be; the Automated Clearing House network now allows same-day transfers for some transactions (such as ACH direct deposits), as well as next-day and 2-day ACH payments.
However, some banks and processors may charge a fee in exchange for this faster processing time.
Pavle Bobic of CCBill provides this advice for businesses that want to get the fastest ACH funds transfers possible:
“Speed up ACH payment processing time by sending your ACH file early on the payment day. If you submit the request to your bank by 10:30 AM, which is the first processing window for same-day ACH payments, the transaction will be settled at 1:00 PM ET.”
In short, while the speed of ACH payments can be comparable to credit card payments, the process is not quite the same.
Because the processing steps and timelines differ from those with credit and debit card payments, you need a different provider and separate merchant accounts to accept ACH.
If you want to implement ACH payments into your business, the best solution is to find a payment system provider (PSP) like Regpack that processes both ACH and credit card payments.
Otherwise, you’ll have to use separate payment gateways—which can result in double the provider fees and double the administrative effort to keep up with your various accounts.
Regardless of the type of payment, you’ll always need authorization from your payee. Checks need signatures, credit cards need to be swiped, and the customer occasionally needs to sign a receipt as well.
Similarly, you can’t run an ACH debit on your customer’s account unless they’ve authorized the payment first.
Most often, a customer gives ACH authorization by signing a form (either paper or electronic). Authorization can also be given verbally over a recorded phone call.
With Regpack, you can create a secure, user-friendly online payment form to capture all the necessary information and authorization to process ACH payments right on your website.
One advantage of ACH payments compared to credit and debit card payments is that customers can set up repeat payments with a single authorization.
If your business conducts a lot of recurring payments—such as a subscription-based service, course, or membership—your customers may appreciate the ability to “set it and forget it” by signing up for a recurring ACH transfer.
Before deciding to accept ACH in your business, make sure you understand the specifics of how ACH payment authorization.
Find out how your chosen PSP obtains and stores authorization information so that you and your company are protected from payment fraud and disputes.
The dispute process for ACH payments is different from that for credit cards.
Whereas the customer can cancel credit card transactions simply by claiming the product or service they received wasn’t what they expected, ACH payments can only be disputed for specific reasons. This aspect of ACH billing creates additional protection for merchants.
There is also a strict timeline for filing a dispute claim for ACH.
According to the ResolvePay blog:
“The ACH network allows up to 60 days for a consumer to file a dispute and two days for a business to file. The protection of consumers against unauthorized bank account debits is federally regulated under the Electronic Fund Transfer Act, which banks must follow.”
There are three reasons customers can dispute ACH charges to their bank accounts, according to Nacha (the organization that oversees the Automated Clearing House).
Let’s go over each reason and provide a few tips for preventing that type of dispute.
The Customer Never Authorized the Transaction
If the customer doesn’t recognize your business name on their bank statement, it is likely that they won’t believe they authorized the transaction. That’s why it’s crucial to choose a name for your statement descriptor that’s as clear and recognizable as possible.
Let’s say John purchases a membership to his local gym, Acme Sculpt Fitness Studio, which is having a “first two weeks free” promotion. John signs up for ACH payments to keep things convenient.
A couple of weeks later, John sees a charge for $45 from “A* SFS” on his bank statement. He’s not sure what that payment is for, and that billing descriptor won’t help jog his memory. He’ll likely chalk it up to fraud and file a dispute.
If your business name is a long one, it probably won’t fit on a statement descriptor. So, to make things easier for your clients, as long as your payment service provider allows it, customize your billing descriptor name so that it’s as clear as possible.
The Customer Agreed to a Different Date
Another reason customers can dispute ACH charges is if they believe the date they authorized was a different one than the date they were charged. This is more likely to happen in recurring billing situations.
Perhaps the customer believes they signed up for your annual billing option, when in fact they will be charged monthly. When they see yet another charge from your company for the second month in a row, they become angry and file a dispute.
To avoid this situation, send the customer an email a few days before the scheduled charge is about to take place so that they’re aware of the billing schedule before the debit hits their bank account.
If the customer is informed about and expects the ACH transaction, they will be less likely to dispute the charge.
The Customer Authorized a Different Payment Amount
Finally, customers can dispute an ACH payment if they believe the agreed payment amount was different than what they were charged.
This problem may arise out of confusion, forgetfulness, or even buyer’s remorse. But yet again, the best way to avoid this scenario is to be as clear and upfront with your communication as possible.
When the customer signs up for ACH billing, inform them of the total amount they will be expected to pay, including all fees and taxes.
For recurring payments, let the customer know whether the price will be the same each billing cycle, or if certain factors may cause the price to fluctuate.
Give your customer as much information as possible ahead of time, and you eliminate the likelihood of disputes.
ACH payments have been exploding in popularity over the last decade—and it’s easy to see why. They’re often the best combination of convenience, speed, and cost-effectiveness for both the customer and the merchant.
If you’re a service-based company that accepts a lot of recurring payments, you’ve probably heard that ACH billing is a great option for you.
Now that you know more details about how ACH payments work—including their lower fees, different processing times, separate merchant accounts, authorization requirements, and dispute processes—we hope you have a better idea of whether ACH billing is a good fit for your company.
To learn more about how Regpack can help you accept various forms of online payments from your customers seamlessly and securely, request a free demo today.