ACH (Automated Clearing House) payments allow the automated processing of recurring and/or batch payments made via debit or credit card. ACH can be used to make purchases – such as insurance – at point-of-sale, but is more often used for online billing and payment transactions by merchants and businesses.
While accepting ACH payments may seem like a no-brainer, it's important to understand how ACH works and the fees you'll likely encounter.
How Do ACH Payments Work?ACH is a payment method that enables customers to pay merchants electronically using funds that are electronically debited from their checking accounts. ACH operates by transmitting batches of direct transactions between participating banks for processing. ACH credit transfers can also be used to deposit funds directly into recipient's bank accounts.
The system was originally designed for businesses who need to make recurring or batch payments, such as paying a monthly utility bill. Businesses and merchants pay less in fees with ACH vs other payment methods because it saves time and money by eliminating the processing of individual checks.
As with other payment methods, ACH ensures all participating banks comply with regulations and prevents fraud by not allowing payments to be processed unless they meet specific security standards. All bank account numbers are encrypted during transmission, so they can't be read as plain text when received or stored by the receiving financial institution.
Does Accepting ACH Payments Cost Anything?The cost of an ACH payment to a merchant is typically much less than other electronic payment methods, as banks can process more transactions faster, and it's generally cheaper for the customer because their funds are already in their account at their bank. The ease and speed of processing allows for direct deposits to a merchant's bank account as well as immediate access to those funds.
Typically the fees associated with ACH processing are paid for by the payee (the person who receives money). However, there may be some instances where you – as a business or merchant – have to pay a fee directly. This is not common, but it can happen if you have a business account at a bank.
In most cases, the customer will pay a fee to their originating financial institution when they initiate an ACH payment for items such as online bill payments or purchases made with a debit card. These fees are usually passed on to the merchant in the form of higher transaction costs.
The total cost of accepting ACH payments depends on several factors, including:
Merchant discount rate. The merchant discount rate is the percentage that a business or merchant is charged each time a transaction takes place. Merchant service providers usually charge between 1% and 4% plus a fixed transaction fee per transaction.
The merchant discount rate is the percentage that a business or merchant is charged each time a transaction takes place. Merchant service providers usually charge between 1% and 4% plus a fixed transaction fee per transaction. Monthly processing volume. The more transactions you process via ACH, the lower your average cost will be. Fewer than 500 payments per month means higher costs due to fixed costs like account setup and customer service.
The more transactions you process via ACH, the lower your average cost will be. Fewer than 500 payments per month means higher costs due to fixed costs like account setup and customer service. Payment frequency . The more frequently customers make purchases, the less it will cost you to process those transactions. For example, consider two business customers who sell one product online for $20 per transaction. Customer A makes one purchase per month at an average cost of 2% plus $0.25 per transaction; customer B makes 100 purchases per month at an average cost of 0.5% plus $0.07 per transaction.
The more frequently customers make purchases, the less it will cost you to process those transactions. For example, consider two business customers who sell one product online for $20 per transaction. Customer A makes one purchase per month at an average cost of 2% plus $0.25 per transaction; customer B makes 100 purchases per month at an average cost of 0.5% plus $0.07 per transaction ACH debit fees. Debit cards are often used with an ACH payment, and while the customer's bank may charge a separate fee for these transactions, businesses usually pay a fee of around 1% of each transaction to cover this cost.
Post articles and opinions on Dublin Professionals
to attract new clients and referrals. Feature in newsletters.
Join for free today and upload your articles for new contacts to read and enquire further.
