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ACH vs. Credit Cards

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedApr 20232 min read

Although credit card payments and ACH payments allow you to manage recurring payments quickly and easily, there are a couple of essential distinctions that you need to understand. We’ve put together a guide to ACH vs. credit card payments, so you can choose the payment option that’s right for your business. Read on to find out more about ACH vs. credit cards, right here. First question: what is an automated clearing house transaction, anyway?

What is an automated clearing house (ACH) transaction?

First off, let’s explain ACH transactions in a little more detail. Essentially, ACH transactions are bank-to-bank payments for businesses in the United States. The transactions are made via the ACH network – governed by Nacha, or the National Automated Clearing House Association – and serve as a natural alternative to payments via credit card networks. There are two main types of ACH transactions: ACH credit and ACH debit. When it comes to recurring charges, ACH debit is the option you’ll need to focus on.

What is a credit card transaction?

You’re probably much more familiar with credit cards than ACH transactions, as they’ve become the primary way businesses collect payments online. Essentially, the cardholder uses their card at the point of sale, at which point, your merchant service provider sends the payment request to the acquiring bank. After the request is approved or denied by the acquiring bank, it’s sent on to the issuing bank, where the transfer to your merchant bank account is finalized.

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Create your free GoCardless account, access your user-friendly payments dashboard & connect your accounting software (if you use one).

2.

Easily set up & schedule ACH Debit payments via payment pages on your website checkout or secure payment links.

3.

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Guide to ACH vs. credit card payments

As you can see, ACH and credit card payments both allow you to take recurring payments simply and easily. However, there are three main differences that it may be beneficial to highlight: the guarantee of payment, automated clearing house processing times, and fees.

When it comes to ACH vs. credit cards, the most critical difference – by far – comes down to the guarantee of payment. Credit card payments are “guaranteed funds” transactions. The credit card network will verify whether the payor is within their credit limit and then approve the trade, meaning that the funds are guaranteed. ACH doesn’t guarantee the funds and transactions can be rejected for a broad range of reasons, including Non-Sufficient Funds (NSF) or closed accounts.

Another key point of difference between ACH and credit cards is their respective processing times. Automated Clearing House processing times may take more than three working days to clear your bank account. By contrast, credit card processing times are slightly faster (it can be anywhere from 24 hours to three days from the transaction, although usually, you’ll receive payment immediately), which can improve your cash flow and boost liquidity.

It’s also important to note that there’s a major discrepancy in ACH vs. credit card fees. Broadly speaking, ACH transactions have the lowest costs associated with any payment system. On the other hand, credit cards typically charge 2.5% of the transaction value in fees, plus an additional processing fee. So, when it comes to ACH vs. credit card fees, ACH is the clear winner. If your business has a high sales volume, the savings from ACH transactions can quickly mount up and improve your company’s bottom line.

ACH/credit cards: which option is best for your business?

Now that you have a better sense of the key points of the ACH vs. credit card payment debate, it’s time to consider which one is the better option for your firm. Simple answer: both. Consumers have different preferences regarding payment – some prefer cash and cheque, while others prefer credit cards or ACH. By offering a broad range of payment methods, you can ensure that you’re not alienating any potential customers by failing to offer their favorite payment option.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.