When it comes to transactions at your business, there are a few different payment options you can accept beyond cash and check, and we will be exploring these two–ACH vs credit cards. These transaction methods offer similar benefits, like accepting digital payments, eCommerce capabilities, and the option to set up recurring billing.
However, there are also significant differences between the two that can affect your cash flow, customer experience, and overall cost of business. Understanding how these differences affect you can really make a big difference in how you operate. So which payment method is right for you?
In this article, we offer a payment method comparison to break down the differences so you can make the most informed decision for your business.
What is ACH Payment Processing?
Automated Clearing House (ACH) transactions are bank-to-bank electronic funds transfers. Think of them like paper checks, except the banking information is sent electronically over the ACH network instead of being written on a physical check.
An ACH transfer can be a credit, where the originating account is crediting another account, or there’s ACH debit, where the receiving account pulls money from the originating account. ACH is commonly used to transfer money to bank accounts for payroll, out of accounts for certain subscriptions, pay for monthly utility bills (when credit cards aren’t accepted), or for many B2B payments.
What is Credit Card Payment Processing?
Unlike the ACH network, credit cards are processed on entirely separate networks. Visa, Mastercard, American Express, and Discover are the four main entities with jurisdiction over credit transactions.
However, for a merchant to accept credit and debit card transactions, they must have a merchant account set up with a payment processor. Payment processors facilitate the payment process by bridge the gap between the merchant’s bank and the card networks.
Key Differences Between ACH and Credit Card Payments
Though ACH and card transactions are both digital transaction methods that businesses can utilize to accept customer payments, they have their differences. Let’s take a look.
ACH Vs. Credit Card Processing Fees
Unlike the Credit Card Networks (Visa, Mastercard, American Express, and Discover), the National Automated Clearing House Association (NACHA) regulates the ACH network. Though the debit rails have far less costly processing fees than the credit networks, NACHA has even lower fees.
Credit Card fees can range from 1.5% to over 4% of a transaction’s total, plus a set per-transaction fee of a few cents, ranging between 10 and 30 cents. This is all dependent on the merchant’s pricing model with their payment processor.
Many cookie-cutter, off-the-shelf payment facilitators charge a flat fee for any card transaction, regardless of the cost. This can be helpful if a business processes mostly business and reward cards. But for lower-cost credit and debit cards, this is actually costing the business way more than necessary.
More flexible payment processors, like ECS Payments, typically offer their merchants interchange plus pricing, which charges the merchant the actual cost of running the transaction. It’s the more transparent pricing structure of the two.
Regardless, if you do want options for offsetting your card processing costs, you can implement surcharges for customers who chose to use credit cards over ACH or debit transactions.
However, with ACH transaction fees, you’re looking at $0.20 to no more than a buck 50. That’s right; whether you process a $10, $100, $1,000, or $1 million transaction, it will most likely cost you a quarter.
Keep in mind, however, that if an ACH transfer is “unsuccessful” or returned to the merchant, whether the information was incorrect or there were insufficient funds, there is a higher fee–one that can range between $2 and $5.
Transaction Speed ACH Vs. Credit Cards
One major difference between credit (and debit card) transactions and ACH transfers is the length of time the transaction takes. With in-person card payments, a customer swipes, dips, or taps their card on a physical payment terminal.
However, with online transactions, keying in information will take longer for ACH and card transactions. With a card, a customer has to manually enter their payment details. This includes the card number, CVV, and expiration date. It also includes their name, address, and billing address (if that’s different).
With ACH, the customer must also enter their personal details, but rather than the card details, they will enter their banking account and routing number. With cards, finding these details is usually more accessible as most customers have their cards within reach to copy over the information. However, with ACH.. most people don’t have these account details readily available. They have to log into their banking account online and navigate their website or app to find these numbers.
Regardless of which online transaction method a customer uses, the first time they enter payment details, it may not be as seamless as in-person card payments. However, many payment gateways can safely store payment details for recurring payments or for one-off return customers. Just ensure you are working with a reputable payment processor who does, in fact, offer secure online payments with encryption and tokenization.
Risk of ACH Vs. Credit Card Payments
ACH and card payments both carry risk. With ACH transactions, you won’t know the transaction status for a few days. Once an ACH is submitted, it is a request to pull funds, however, there is no communication between the network and financial institution that instantly checks the transaction details or funds in the to-be-debited account.
Your ACH may return 3 days later with incorrect details, like entering the account or routing number wrong or with NSF (insufficient funds). If you’ve already provided your services or product to your customer, you may have some repercussions.
Cards can also be risky. Yes, the card network, payment gateway, and financial institutions work simultaneously to verify and approve or deny a transaction within 3 seconds. However, it’s more common for cards to be used in fraud schemes versus ACH details. Because of this, consumer protection laws give consumers the right to dispute any transaction on their card.
Cardholders could dispute legitimate transactions they forgot about, real fraudulent transactions, or transactions where they don’t agree with the merchant’s return policy and are unhappy with the product or service. Because of this, businesses can lose thousands, depending on how many chargebacks they receive. Though businesses have the right to rebuttal any chargeback, banks tend to favor their clients, the cardholders.
Settlement Timelines of ACH Vs. Credit Card Payments
One difference to consider with ACH vs. credit card transactions is their settlement times. Credit card transactions can settle into your merchant account 1-2 days after the transaction is finalized, whereas ACH transfers can take 3-5 business days. This does not include weekends or holidays. You also have to consider batch cutoff times.
Let’s work this out with a real-life example. Suppose the transaction took place on a Wednesday, but you missed batching out by the cutoff time, usually around 5 PM ET, but varies by processor, because you are on Pacific time and your business operates until 6 PM PST. In that case, you now are batching out the following day.
You have five business days to settle, but the weekend is two additional days, which doesn’t count toward this timeline. Therefore, you will be waiting Thursday, Friday, Saturday, Sunday, Monday, Tuesday, and Wednesday the following week to receive those funds. So, in reality, many ACH transactions aren’t settled for a full week. So, if you’re a business that needs quicker cash flow, card transactions are a better option.
Which Method is Right For Your Business?
Whether you’re a small business or a multi-location enterprise, you must consider which payment option is best for you. Both card transactions and ACH have their benefits, but both also have their disadvantages. To determine the right course for your business, you have to decide if you’re looking at cost-efficiency, convenience, or which makes sense with how your business operates.
ACH for Cost-Efficiency
ACH payments are hands down the most affordable electronic payment method. If your business is flexible in how it operates or is in an industry that does a lot of B2B sales, payroll, or service transactions, such as utilities or cash exchanges, ACH may be the right choice to offer payments for your clients at the most affordable rate.
Credit Cards for Convenience and Sales
If you process payments in person for industries such as restaurants or retail, ACH would not apply to your checkout process. These physical types of industries benefit from credit and debit card transactions.
Retail and restaurants, however, can still accept online payments with credit and debit if they offer online shopping or online orders. In this case, your payment processor can set you up with a virtual terminal and gateway that seamlessly integrates with your website. Still, in these cases, ACH wouldn’t be the most convenient for your type of customer.
Choosing ECS Payments for Whichever Method You Need
The decision between ACH and credit card processing ultimately depends on your business’s specific needs and what it prioritizes most. ACH payments are cost-effective, while credit cards offer convenience and are widely accepted by customers.
In some cases, a business may be able to offer both payment methods. The right processor, like ECS Payments, can offer both solutions, custom tailored to match your needs.
By carefully weighing the pros and cons of each payment method and choosing the right payment processor, you can optimize your payment processing and enhance your overall business operations.
