When it comes to accepting online payments, most merchants primarily think of debit and credit card processing. Although these cards are the most common type of online payment method, ACH and checks are still very common in almost all areas of business. Financial institutions handle over 25 billion ACH payments per year.
Below, we’ll go into further detail about ACH payments, how they work, and how to avoid paying more than you have to via fees.
What Are ACH Payments?
A different network handles ACH payments than the credit card and debit card rails. ACH payments go through the Automated Clearing House, which is where we get the acronym ACH. This clearing house handles the transfer of requests and payments between the two entities’ bank accounts. As a result, there is a different fee structure than credit and debit card transactions.
It’s also important to note that an ACH is not the same as an EFT or electronic fund transfer. Instead, an ACH is a type of ETF. ETF is a blanket term that covers a variety of electronic transfers including ACH and wire transfers.
ACH payments facilitate two types of payments. The first is direct payments via ACH. These work similarly to old paper checks but are done electronically through the ACH. They are usually done between two private entities such as a merchant and a customer. The second is for direct deposit or wire transfers. These are generally for handling payroll, government benefits, or sending money between bank accounts.
ACH transfers can be both credit and debit, but this does not refer to card types. Instead, an ACH debit is simply a transfer or “pull” from one bank account to another. A common example of this debit entry would be for recurring payments from a customer to a merchant where the merchant “pulls” the funds on a regular basis from the customer’s checking account. A credit ACH is a “push” which is used for moving money or sending money.
Understanding ACH Transaction Costs
As with all forms of payment processing, ACH payments have fees attached to them and it’s important to understand these fees as they relate to other payment methods. However, even with their fees, ACH transactions are typically much cheaper than processing any other form of payment.
Free ACH payment processing doesn’t exist. These services are facilitated by financial institutions and someone has to cover those costs. It’s important to have a good understanding of ACH fee basics when deciding on an ACH processor or dealing with ACH payments and transactions.
Set up and Account Fees
When first setting up an account to handle ACH transactions, there may be a setup fee. However, you may have this cost already covered if you have other electronic payment services and payment gateway access with your processor.
Just like with debit and credit cards, your account fees can vary greatly depending on your transaction volume, the level of risk of your transactions, etc. It’s important to consider the different services a payment provider may offer in return for different fees.
Account fees can run anywhere between $10 and $35 a month, varied between merchants and processors. Keep in mind, however, a lower account fee isn’t necessarily better as it may have reduced services and not offer everything you need for your business.
Different Types Of ACH Transaction Fees
There is an ACH cost per transaction known as the processing fee. This fee may be either a flat rate or a percentage depending on various factors related to the merchant.
Flat rates generally run between $.20 – $1.50 per transaction. Percentage rates are generally 0.5% to 1.5%. These rates are for standard processing. However, just as with credit card and debit card processing, high-risk products or transactions will generally have higher fees.
If you run a high-risk business, contact ECS Payments. We specialize in high-risk processing and can help you process with the best rates for your high-risk transactions.
ACH Chargeback
Similar to credit card chargebacks, ACH transactions also have a chargeback fee associated with them. These can range from $5 to $35 depending on the merchant and their relationship with their processor.
Chargeback fees are usually higher than return fees, which we’ll cover next.
ACH Return Fee
The return fee occurs is when an ACH transfer is returned or in other words, “refunded”. This is not the result of a dispute and is usually when there was an error in the transaction information or a product was returned.
Such errors could be NSF (insufficient funds), wrong account information, closed account, and so on. There are many ACH return codes for transfers that were unsuccessful and you should become familiar with them.
ACH return charges are may run between $2 and $5 per return.
Batch Fee
When merchants run transactions in batches, which is a common practice to maintain efficiency, there is may be a batch fee – which is typically less than $1.
High-Ticket Surcharge
For ACH transactions over a certain amount, there may be a high-ticket surcharge. The threshold can vary, but it is commonly for transfers over $5,000.
Monthly Fee
Monthly fees are an industry-standard practice. There may be additional monthly fees for handling ACH transactions or this fee may be rolled into your already existing monthly fee for your debit and credit card merchant account.
Minimum Fee
Some processors may have a minimum fee if certain thresholds are not met. This means if transaction volumes are too low, there may be an additional fee to cover the difference of maintaining and operating your merchant account.
Expedited Processing Fees
One drawback of ACH transfers is that they are not instant like credit or debit card transactions. The standard processing is usually 3 business days or more . However, there are expedited options but these include fees for the sender.
ACH Check Processing vs eChecks
ACH transactions and eChecks (electronic checks) are often thought of to be the same, but they are slightly different. E-checks specifically refer to the digital version of a paper check. However, not all ACH transactions require a paper check, only the banking details. Therefore, echecks are a specific type of ACH transaction. However, not all ACH transactions are “echecks.”
Benefits of ACH Transactions
Although there are certain fees involved with ACH transactions, there are benefits to using ACH transactions in certain situations over cash or credit card payments.
Security Of ACH Transactions
ACH transactions are secure. The way both push and pull transactions are handled separately adds an extra layer of protection and security for both parties. Fraud can happen in any type of transaction, but financial institutions consider ACH payments very secure.
Good For Recurring Payments
One area where ACH transactions are extremely beneficial is for recurring or installment payments which occur at regular intervals. The merchant can set up the recurring ACH transaction one time and the money is automatically pulled at the specified date until the payment has been completed in full.
eCheck Vs ACH Vs Check
If a business needs to take paper checks, converting to ACH transactions creates immediate cost and time savings. The ACH process is much more streamlined. It is easy to integrate ACH transactions with your accounting or sales software.
Downsides of ACH Transactions
The downsides of ACH transactions include its limitations and processing timeframe. Depending on the banks and processor, there may be transaction limits, daily limits, and monthly limits.
Another downside is the time it takes for approval and settlement. Credit and debit cards can provide instant approval. ACH transactions take a few days to settle. And you will never know if the customer has the funds or if the transaction data is accurate until the bank reviews the transaction. This time frame makes ACH inconvenient for certain payment scenarios.
How To Minimize ACH Processing Fees and Costs
Below, we’ll go over some tips for negotiating lower transaction fees with banks and payment processors. ACH transactions have significantly lower fees than paper checks, but it’s always best to try to get your overall fee structure as low as possible.
Set Up Your ACH Contract For Success
To begin, it’s best to set up all your payment processing at once. So when setting up your merchant account, you should already know if you may need ACH processing ahead of time, even if you may not need it right now.
This way, you may be able to bundle your services under one monthly or set up fee instead of needing to add on services later at a later date.
Choosing the right payment processor may be the most critical step toward keeping your costs lower when working with ACH transactions-especially if you are dealing with high-risk transactions or other complex payment processing needs.
ECS Payments is a leader in high-risk transactions and we work with merchants all across the country to provide them with the solutions they need with fair fees and incredible service.
Implement Practices to Reduce the Risk of Chargebacks
ACH chargebacks can be a source of high and unexpected fees. By maintaining good business practices, you will mitigate your chargebacks. Be willing to work with customers if a dispute occurs instead of letting it go to a chargeback. Also, send a receipt even if the authorization does not require it.
Another tip to reduce chargebacks is to make sure to fully communicate the payment amount and how the charge will appear on the customer’s bank statement. Sometimes customers are simply not aware of what a charge is when they see it on their statement.
Be Aware of Your Limits
One last tip to manage fees is to be aware of your ACH transaction limits. Make sure you fully understand your processor’s fee structure so that you don’t go past your limits and unnecessarily incur extra fees.
Additional ACH Transaction Help To Lower Costs
If you’re a merchant who needs to accept checks or ACH payments, contact the specialists at ECS payments. ECS is an ACH payment processor that can help your business integrate check processing services and ACH transactions with the lowest costs so you can maximize your margins.
Our team of experts also specializes in high-risk transactions, so if you’re in a high-risk industry, we can help you process the most transactions with the least amount of problems.
Contact ECS Payments today to learn more about ACH transaction processing and the low fees we can offer merchants.
