ACH transfers, or payments made through the Automated Clearing House network, account for billions of dollars in payments annually. In fact, NACHA, the nonprofit that governs the ACH payments network reported 6.1% in payment volume growth in Q4 2021.
The average consumer commonly uses the ACH network for automated bill payments and larger transactions. However, the use of ACH payments in B2B transactions accounts for a large portion of payments made through the network and grew by 17.4% in Q4 2021.
Since many businesses collect payments from their customers and handle their own business expenses, ACH payments are already a substantial part of business operations.
ACH payments use the same information as a paper check, but with additional benefits which have been diverting users away from traditional check writing. Here, we’ll discuss the main differences between ACH and check payments and the business benefits of accepting this form of payment.
TL:DR
- ACH Payments are essentially digital check payments. They are an additional type of payment you can take along with debit card transactions and credit card payments from card networks like Mastercard, Visa, American Express, and Discover. Or mobile wallet payment solutions like Google Pay and Apple Pay. Of course, ACH payments do not come with the same interchange fees that credit card transactions do.
- ACH payments are more straightforward than how credit card processing works, both on the consumer-facing and business end. They come with low fees so businesses don’t have to overthink what are the best credit cards for them to accept.
- Setting up ACH payments is easy with a great merchant account service like Stax.
ACH Payment Versus Check Payments: What’s The Difference?
An ACH payment requires the same information that is on a check, including the name of the financial institution, transaction amount, type of account (checking or savings), and the routing and account number. These transactions usually process within one to three business days and are most commonly used for payments such as direct deposits for payroll, recurring bill payments, and B2B invoice payments.
Simply put, check payments are the analog version of ACH transfers. Requiring all the same information, a check payment accomplishes the same goal but takes a lot more time–and introduces more variables. While checks require in-person or mail-in payments, ACH payments are taken through a virtual terminal, so eCommerce companies can use them, as well.
For example, once the check is completed, it is put in the mail, sorted at the carrier facility, sent out for delivery–and once delivered, the recipient needs to go through the process of depositing the funds. Not only does this pass through more hands and take more time than an electronic ACH payment, but there is also a huge amount of personal information present on a paper check, exposing the payer to potential identity theft.
Benefits of Accepting ACH Payments
The ability of a business to accept an ACH payment can be advantageous. Not only is this payment type a secure and low-cost alternative to contactless payments and credit and debit card payments, it often processes more quickly. The following is a list of some compelling reasons small businesses should consider accepting ACH payments.
Faster payment delivery
As mentioned above, paper check payments take a longer period to process. Not only does it take additional time for the business to get paid, funds are not quickly withdrawn from the customer account. This additional time for payment delivery can cause confusion and errors and ultimately can have negative impacts on the customer experience.
According to NACHA, most ACH transfers process the same or next-day. In 2020 there was an average of 1.4 million ACH payments, with a daily value of $1.8 million. It is clear the tide is already shifting away from check payments, and adding ACH transfers may be a mutually beneficial offering for both businesses and their customers.
Lower processing fees
Compared to other payment methods like credit and debit cards, an ACH payment is far less expensive. With an average cost per transaction of $.29, ACH payments are a cost-saving option for businesses of any size.
There’s generally no credit card processing fees, hidden fees or interchange rates charged by the processing company, unlike what credit card networks do with credit card payment processing.
This also makes ACH payments ideal for high-value transactions. When you’re selling products or services that cost thousands of dollars, you end up paying hundreds of dollars in credit card fees. Using ACH payments reduces your processing costs to a fraction of what you’d typically pay when a client uses a credit card.
Automate recurring payments
ACH payments are well suited for recurring transactions and are often used in many industries. For example, a law firm typically bills clients multiple times either for installment payments or ongoing hourly charges. Since these transactions are usually recurring and on the larger side, ACH transfers are an easy way to simplify the bill pay process. Once the client sets up a payment profile with their banking information, the payment can be automated and paperless.
Implementing ACH payments processing in your business can reduce the human error component of manual bill pay and check writing, thus increasing the speed and consistency of getting your invoices paid and improving the client experience.
Safety and security for your customers
Virtually every person has personal information outside of their control; whether it is payment information saved on a rogue shopping profile or a data leak exposing sensitive personal data, consumers have valid reasons to be concerned about identity fraud. Beyond the inconvenience of mailing a paper check, there is an increased risk of identity theft.
A recent study by the Better Business Bureau states that fraud and identity theft rose by 45% from 2019 to 2020. While this increase includes many scenarios, it’s important to think about how much unnecessary exposure is created in using paper checks as payment. The same study indicates a 72% increase in account takeover since 2019. As such, eliminating the use of paper checks whenever possible is a prudent step in minimizing exposure of personal information.
Beyond being less convenient than other payment types, check payments are being actively discouraged by industry professionals. The Federal Trade Commission offers straightforward advice: “don’t give out your bank account number.” Because check payments include not only the bank account number but also name and address, this payment method is not a recommended option. (And, of course, there’s no possibility for cardholder’s sensitive card information to get released as there can be with a payment gateway that lacks good security.)
With an ACH payment, customers need only to enter their banking information once (versus sending multiple check payments) on a secure platform and they are then ready to safely and securely process one-time and recurring payments with businesses that accept ACH transfers.
Reduce fraud for your business
Businesses that use paper checks for B2B payments are also at risk for fraud. It is estimated that 75% of businesses have experienced check fraud. Paper checks are being ditched by businesses and consumers alike because they are simply inconvenient and lack the security assurance of a digital payment method.
ACH payments are consistently ranked as one of the safest payment methods a business can accept, and are regulated by the Federal Reserve Bank and Electronic Fund Transfer Act.
User-friendly and easy set up with ACH payments
Many customers may not know they frequently use ACH payments already in their daily lives. For any business looking to implement ACH transfers as an accepted form of payment, it’s important to communicate how easy it is to set up. Customers need to share their information once, and so long as they don’t change their issuing bank account information, they’ll be set up indefinitely for any payments that need to be made.
Compliance Considerations for ACH Payments
When implementing ACH payments, businesses must navigate several regulatory requirements and security standards to ensure legal and operational compliance – similar to how credit card processing requires PCI compliance. The ACH network is governed by a variety of regulatory bodies. Understanding and adhering to these regulations helps protect both businesses and customers while promoting secure, efficient transactions.
NACHA Rules and Requirements
The National Automated Clearing House Association (NACHA) is the primary organization overseeing the ACH network. Compliance with NACHA’s rules is crucial for businesses to maintain access to the ACH network, and failure to comply can lead to fines or loss of ACH privileges.
NACHA’s core mandate is to ensure the security of ACH transactions. Businesses must adhere to NACHA’s “ACH Security Framework,” which includes measures for safeguarding sensitive customer data – similar to how PCI DSS protects cardholder information at checkout. As part of this, businesses must use secure methods to collect, transmit, and store sensitive financial information to minimize the risk of fraud and unauthorized access.
Another significant NACHA rule is the requirement for authorization. Before initiating ACH payments, businesses must obtain explicit authorization from the customer. The record of authorization must also be retained for a specific period (often two years) to demonstrate compliance if needed.
NACHA also requires businesses to take responsibility for reversals in the event of errors or duplicate transactions. Businesses are expected to have procedures in place to promptly address and reverse erroneous ACH payments, maintaining integrity and trust in the ACH network.
Federal Regulations Impacting ACH Payments
ACH payments are also subject to federal laws, most notably the Electronic Fund Transfer Act (EFTA) and its implementation through Regulation E. The EFTA outlines a set of rights and responsibilities for both the consumers and businesses involved in ACH payments.
Under Regulation E, businesses must disclose essential information about ACH payments to consumers, including terms of use, transaction fees, and dispute resolution procedures.
Regulation E also provides consumers with dispute and error resolution rights. In case of unauthorized or erroneous ACH transactions, customers have 60 days from receiving their statement to report the issue. Businesses are required to investigate these disputes promptly and work with their payment processor to resolve them.
How to Implement ACH Payments
For any business owners assessing which payment options they should accept (whether online or with a card reader at a point-of-sale), it’s important to consider which payments are a good fit for the company and the customer. Chances are, if your business accepts check payments, adding ACH payments is likely a good fit.
If ACH payments are a good fit for the business, the next step is to choose the right payment processor. Choosing a payment provider that can handle multiple payment types streamlines this process and provides valuable insight into the financial health of the company.
Stax’s all-in-one payment platform can facilitate ACH transfers to streamline your billing operations—while helping you be more cost-efficient. With transparent pricing and no contracts, Stax makes payment processing a breeze
Accepting ACH payments is just one of many ways Stax can help modernize and secure your business.
Quick FAQs about ACH Payments vs. Check Payments
Q: What are ACH payments?
ACH payments, or payments made through the Automated Clearing House network, are electronic payments made directly between banks. They use the same information as a paper check and are commonly used for direct deposits, recurring bill payments, and B2B invoice payments.
Q: What is the difference between ACH payments and check payments?
ACH payments require the same information as checks, but they are processed electronically, usually within one to three business days. On the other hand, check payments are a manual process and take longer to process. A check also exposes the payer to potential identity theft as it contains a lot of personal information.
Q: What are the benefits of accepting ACH payments?
- Faster payment delivery: ACH transfers process faster than paper check payments, providing businesses with quicker access to funds.
- Lower processing fees: Compared to other payment methods like credit and debit cards, ACH payments are less expensive.
- Automation of recurring payments: ACH payments are well-suited for recurring transactions, reducing the human error component of manual bill pay and check writing.
- Safety and security for customers: ACH payments are a secure method of payment that minimizes exposure to personal information.
- Reduced fraud for businesses: ACH payments are consistently ranked as one of the safest payment methods a business can accept.
Q: How can businesses implement ACH payments?
Businesses can implement ACH payments by choosing a payment provider that can handle multiple payment types, such as Stax’s all-in-one payment platform.
Q: Why are ACH payments considered more secure than check payments?
ACH payments are more secure than check payments as they are electronic and do not require physical handling, reducing the risk of a paper check getting lost or stolen. Furthermore, they minimize the exposure of personal information, helping to prevent identity theft.
Q: Can ACH payments be used for recurring transactions?
Yes, ACH payments are ideal for recurring transactions. Once a client sets up a payment profile with their banking information, the payment can be automated and paperless, making it a convenient and efficient method for both businesses and customers.
Q: What is the cost of an ACH transaction compared to a check payment?
The average cost per ACH transaction is $0.29, making it a cost-effective option for businesses. In contrast, the cost of a check payment can be significantly higher due to the cost of the physical check and the processing fees.
Q: How quickly do ACH payments process compared to check payments?
Most ACH transfers process the same or next day, whereas check payments can take several days to process due to the need for physical delivery and depositing of the funds.
Q: Why are ACH payments considered user-friendly?
ACH payments are considered user-friendly as customers only need to share their banking information once. Once set up, they are ready to safely and securely process one-time and recurring payments with businesses that accept ACH transfers.
