In brief: ACH has been the fastest growing payment type in the US over the past three years. Depending on the business you are in, there are several benefits to be realized by accepting ACH payments. The article below discusses which types of businesses reap the greatest benefits from ACH and what to consider when choosing an ACH payment partner.
A recent article in Digital Transaction magazine described how Mercedes Benz customers in Germany can now use their vehicle as a payment device for digital services and on-demand hardware updates in the Mercedes me store. Seems like the convenience trend of enabling payments through common, everyday devices is alive and well.
Given all this new technology, it’s interesting to note the greatest transaction volume growth in payments is not a shiny new channel with a new car smell but rather one that’s been around for over 50 years. According to the latest Fed study, Automated Clearing House (ACH) has grown more than 8 percent in the US over the past few years. This is ahead of general credit card usage which had a three-year growth rate of 5.3 percent.
What is ACH?
Introduced over 50 years ago, ACH is a method of electronically moving money between accounts at different financial institutions. Chances are, this is how you get your paycheck deposited every two weeks. It is also how many people pay their bills using their bank’s online bill pay feature or their creditor’s website.
There are a number of factors that may have contributed to the increase in ACH transactions. These include 1) pandemic-spurred ecommerce growth, 2) avoiding consumer credit card surcharges, 3) customer convenience, and 4) the desire to become more efficient with Accounts Receivable processes. Hard to know for sure. What is certain is that ACH continues to thrive despite its age and there are many benefits to businesses that enable this payment method.
What Types of Business Should Accept ACH Payments?
Customers tend to not tote around their routing and bank account numbers when they’re shopping. As a result, if you are a retailer or business where customers are transacting with you in person, ACH payments are not necessarily for you. In general, the following types of businesses will reap the most benefits from enabling ACH.
- Any business that issues invoices or billing statements, such as medical and dental practices, legal firms, accounting firms, and B2B products and services
- Businesses accepting recurring or installment payments
- Businesses with ecommerce or phone transactions
Benefits of ACH for Businesses
In today’s world, it’s in the best interest of merchants to make payments as easy and convenient as possible for their customers. The fact is, not all customers want to or are able to pay with a credit card all the time. Augmenting credit card acceptance with an ACH option gives those customers an alternative way of transacting. More options lead to more transactions, and that’s a big benefit for merchants.
Here are a few more benefits to consider:
- Get your money faster than waiting for check payments to arrive in the mail.
- Fraudulent activity is less likely with ACH than with physical checks
- Streamlines your Accounts Receivable bookkeeping
- Relatively inexpensive to process ACH transactions
Getting Started with ACH Payments
If you are a software platform with integrated payment capabilities, make sure your payment partner has integrated ACH capabilities. This is essential particularly for software providers whose users collect payments via invoicing, ecommerce, or phone.
Read More: Why ACH Should Be Added to Integrated Payments Solutions
For merchants, your options are to either go through your bank, credit union or a third party payment processor (TPPP). This is typically your credit card processor. According to Business News Daily, ACH funds are available quicker when processed by a TPPP rather than a bank or credit union.
Costs of ACH
Fees for processing ACH transactions vary across the board. Typically, ACH transactions incur a flat rate or a percentage of the transaction. Flat rates tend to range from $.20-$1.50 per transaction. Percentages can range from 50 basis points to 150 basis points. A couple of factors influencing your costs are your selection of ACH service providers and the risk status of your business. Risk status is determined by processing volume, the credit score of your business, and the type of industry you are in. The higher your risk status, the greater your cost.
In Summary
Not all businesses will benefit from adding ACH to their payment mix. Retailers and other businesses whose transactions are primarily in person will be better off sticking with credit card and debit card payment methods. On the flip side, businesses such as ecommerce, B2B, health-related practices, and service providers will enjoy numerous benefits by enabling ACH.
Key to success is to make sure you’re partnering with a payment provider that can process those transactions in a timely manner and give you fair, transparent, and sustainable pricing.
