ACH is one of the most popular modes of transactions employed by businesses, both big and small. If you are considering plans to set up an ACH system for your business, then before finding out how does an ach payment work, there are some very pertinent facts that you must know.
In this article, let us take a look at 7 important things that you need to know about ACH billing.
1. Payment processing times vary in ACH
It is crucial to consider the processing time required for ACH payments, to account for the benefit of your customers, and predict your cash flows in a period of time. Generally, it takes about 3 to 5 days to process ACH payments. But banks are known to offer higher preference to ACH transactions than others like credit card payments.
2. Per transaction charges are usually lower
Compared to credit and debit card transactions, the fees involved in ACH transactions are generally much lower. If the processing bank levies a flat fee for your ACH transactions, this will turn out to be much less expensive than your credit card and debit card payments. Moreover, there are no worries about bearing non-qualified transactional surcharges. You get to save more when your average transactional value is higher.
Here, it must be kept in mind that this factor depends mainly on the rates charged by your credit card and ACH. If you use a payment gateway that comes with additional fees per transaction, you must consider that expense too.
3. ACH Transaction charges are deducted separately
Your ACH transactional fees for using payment gateway are separate. This is because ACH payments are processed via a separate merchant account and a different provider. You must keep this difference in mind for your business accounting purposes.
4. ACH payments and debit card transactions are very different
Although both debit card and ACH payments are directly deducted from the bank account, the method of processing each transaction is entirely different. You need to view this from two perspectives; firstly, from your customer’s standpoint, they are allowing you to debit from their bank account with an account number and routing in place of swiping a debit card or typing in the card number.
Again, from your standpoint, you are dealing with a totally different payment processing partner. This means that you might have to deal with diverse chargeback policies and engage with different partners in case of trouble.
5. ACH payments need authorization
Your customers have to authorize you before carrying out an ACH transaction. This is usually done by providing you with a signed form that contains all the required details. Apart from this, you must know how to authorize the kind of transactions that you will carry out, to protect your business from potential scams and disputes.
ACH is highly flexible for recurring, one-time, and unique payment schedules, and supports different payment amounts too.
6. Dispute policies for ACH and credit cards are entirely different
According to the National Automated Clearing House Association (NACHA) that governs the ACH network, there can be only 3 reasons for a dispute over ACH charges to a bank account –
- If the charge is processed on a date that is earlier than what is authorized
- If the account holder never authorized the charge
- If the charge is for a different amount than what was authorized
While claiming credit card charge disputes are relatively flexible, disputing ACH charges offers better coverage to business owners from fraudsters posing as customers.
7. In case of insufficient funds, ACH payments can also bounce
Even if the transaction shows success initially, it can return in case of non-sufficient funds (NSF). While processing an ACH payment, it only checks the existence of the account to which it will be routed. The system does not check if funds also exist before deduction. To avoid this you can go for check validation or guarantee. But it typically involves much higher fees for each transaction.
Considering this, it is up to you to decide when to use ACH payments. If you know your base of reliable and loyal customers, you can use ACH transactions while dealing with them.