How to Accept ACH Payments

• Accepting ACH payments offers customers an added level of convenience.
• Payments can be accepted through a bank or a third-party payment processor.
• Payments can be processed in a day or two, but may take several days to post.
• This article is for small business owners interested in electronic payment processing options. 

ACH is an electronic network that banks and other financial institutions use for processing payments electronically. When your small business accepts ACH payments, you offer customers an added degree of flexibility.  Here's a deeper look at ACH payments, how they work, how to start accepting them, and how they differ from wire transfers. 

What is ACH, and why is it important? 

Before we get into accepting ACH payments, it's important to understand what ACH is. ACH stands for Automated Clearing House; it's a centralized payment processing network used by banks, credit unions and other institutions for sending and receiving money. ACH is administered by the National Automated Clearing House Association (NACHA), an independent association owned by its member institutions (banks, credit unions and payment processing companies).

It's easy to set up ACH payments. If you have a business checking account, you can already accept ACH payments through your bank. Alternatively, you can register with a third-party payment processor (TPPP) to accept payments faster in exchange for a small fee.

Accepting ACH payments is beneficial because it's an economical way to process payments from customers, particularly if you routinely serve other businesses or regularly invoice clients. If your business is a retail store that handles many cash and credit card transactions, ACH may not help you. But, if you run a service business, serve other small businesses, or regularly receive recurring payments, then offering ACH as a payment method may be a great step.

Did you know? Payments sent through ACH are usually processed within a day or two if done through a TPPP, though it can take three days or longer if done through a bank or credit union. There are still fees for ACH payments, though they're typically lower than wire transfers.

How do ACH payments work?

ACH payments are electronic transfers sent through a bank, credit union, or TPPP (often a credit card processor). You can also use ACH to pull funds from a customer if they provide their payment account details.

Often, businesses that want to accept occasional ACH payments from customers can do so using their traditional bank accounts. They provide their account details to the customer, who then initiates the payment and pays a small fee. 

You may be able to accept ACH payments through a bank or credit union for free, but often you'll incur a fee of $5 to $15 per incoming transaction. Payments also typically take longer to post to your account.

For businesses that plan to accept ACH payments more frequently, or that want to give their customers the option of setting up recurring ACH payments without paying fees, a third-party payment processor may make more sense. A small fee will be charged to your business, just like when you accept a credit card.

If you choose to accept ACH payments using a TPPP, your funds will probably be available faster, but you'll pay a flat fee of 20 cents to $1.50 per transaction, plus 0.5% to 1.5% of the transaction's value (like with credit card transactions). You may also incur a monthly fee of $5 to $30. 

How to accept ACH payments

The simplest way to accept ACH payments is through a bank. All you have to do is set up a business bank account (if you don't already have one) and provide the customer with your banking details. Customers initiate the payment on their end, and no further action is required on your part.

However, if you plan to accept many ACH payments or let customers set up recurring monthly payments, you may prefer a third-party payment processor. (Some of the best credit card processing companies are also ACH payment processors.) While using a TPPP is a bit more involved, you may end up paying less and accepting payments more efficiently.

Here are the steps for accepting ACH payments through a third-party processor:

1. Pick a provider.

If you have a business checking account, you're technically already able to accept ACH payments; the process may just be a little slower, less convenient, and potentially more expensive. If you intend to accept ACH payments regularly, you'll probably want to find a TPPP. 

If you already accept credit cards, you may be able to use the same credit card processing company for your ACH payments. If you aren't yet taking credit cards, spend some time researching third-party payment processing companies. Find one that makes it easy to accept payments through a point-of-sale system or another payment gateway. Ensure the company charges reasonable fees, forwards payments in a timely fashion, and has an easy-to-use dashboard to manage your account.

Tip: Learn how not accepting credit cards may be hurting your business's bottom line.

2. Register. 

Once you've decided on a payment processing company, you'll need to get set up. Setup may require creating a new account, or you may need to contact a credit card processor to get set up specifically to accept ACH payments – or add them to your available payment options if you're already using the company to accept credit cards.

3. Get payment details.

When you're set up to accept ACH payments, take note of your payment details. These are like the account and routing number on a traditional bank account, but if you're using a third-party processor, it's for your merchant account.

Additionally, make sure you know how to initiate transactions through your processor to pull funds from your customer's account. This is often done through a gateway or dashboard.

4. Share routing details.

The last step to accepting ACH payments is to process transactions. You may need to give customers your account details so they can send you a payment. If you're using a TPPP, you may be able to take the details of your customer's account and initiate transactions on your end. 

If customers are worried about security, they may be able to enter their payment details themselves via a payment gateway. Your processor will then pull funds from their account into your merchant account.

ACH payments vs. wire transfers

Wire transfers are electronic payments made between banks and other financial institutions. These transfers are processed overnight and routed through the Federal Reserve Wire Network (the Fed Wire), the federal regulator for banks chartered in the United States. Wires are settled at the end of each business day, and funds become available in recipients' accounts immediately.

ACH payments, as mentioned previously, are conducted through a centralized network administered by NACHA, an association owned by its member institutions. ACH payments can also be processed quickly (within a day or two) when done directly. More often, when processed through retail banks, it takes three to 10 days for funds to become available, depending on bank policy.

Functionally, wire transfers and ACH payments processed through banks are very similar. However, ACH payments made through a third-party processor are much cheaper and more convenient than wire transfers. Many banks charge fees for both incoming and outgoing wire transfers. On the other hand, outgoing ACH payments may incur a small fee, but incoming payments are usually free.  

Key takeaway: In many respects, ACH payments are very similar to wire transfers, except that ACH payments are slower and less expensive.

Benefits of ACH payments

Getting set up to accept ACH payments for your business may not seem significant, but adding another payment option can be a big convenience for customers, especially those who send payments regularly. 

Plus, some people don't like to pay with credit cards or debit cards. They may think using a card is riskier, or, depending on how you're set up to accept payments, they may be charged a processing fee that they'd prefer to avoid. 

If you run a service business, it may not make sense to accept credit cards for the small number of transactions you'd process per month, but ACH payments let you give clients a way to pay without sending a check or incurring a wire transfer fee.

Here are some additional benefits of accepting ACH payments:

• They're cheaper than wire transfer. Fees for ACH payments are nominal, even if processed through a bank.
• They're easy to initiate. ACH payments can be pushed or pulled, typically online, without calling your bank or financial institution.
• They're secure. With the right gateway, ACH offers customers an option to pay without having to share their payment details with your staff. They may even be able to push payments directly from their bank account without disclosing their details.
• They allow for convenient scheduling. If you accept ACH payments, you can let clients and customers set up recurring payments.
• They're easy to set up. If you already accept credit cards, accepting ACH may be as easy as adding the option from your merchant services provider. You may even be able to process transactions directly through your existing POS system.

What are the disadvantages of ACH payments?

While ACH functions similarly to a wire transfer, it's far from perfect – especially for certain types of businesses.

Here are some of the cons of ACH payments:

• They're slower than wire transfer. ACH payments process within a day or two, whereas wire transfers settle at the end of each business day.
• Fees are still involved. Even if you process ACH payments directly through a TPPP, there will be fees involved in accepting these types of electronic payments. Some banks don't have fees for incoming ACH payments, but in most cases, you can expect to pay a fee for each ACH transaction you process.
• Posting is delayed. Funds sent by ACH aren't available for immediate use. Because ACH payments can be rejected or revoked, it takes several days for funds to become available in your account. If you accept payments through your bank, it can take three days or longer to access your money. 
• They can be revoked. If there are any issues sending a payment via ACH (such as insufficient funds), the transaction may be canceled. If you've already committed the funds you believe are on their way to your account, you may be left with insufficient funds yourself.

When ACH may not be right for you

While ACH payments offer an extra degree of convenience and flexibility for some, they don't work for every customer or every business. If you regularly invoice clients and need access to funds immediately for your business, consider using a wire transfer instead.

If you don't need your money right away and can deal with some slight inconveniences, you may prefer to encourage clients to issue checks. If you primarily process a high volume of retail transactions, you may want to stick with cash or credit cards instead.