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The pros and cons of ACH payment processing

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Last editedJan 20223 min read

An ACH payment is a type of online payment that offers several benefits to businesses and individuals alike. ACH transfers are generally cheaper, more secure and more convenient than payments by card, check or wire transfer, but they do come with some limitations that you should be aware of.

What is the ACH method of payment?

The ACH (Automated Clearing House) Network is an electronic financial network that facilitates payments and an ACH payment is, in essence, a digital check. Rather than going through card networks like Visa or Mastercard, this electronic, bank-to-bank payment process operates via the ACH Network and has been regulated by Nacha since being introduced in the 1970s. This process allows for direct payments between two US bank accounts.

ACH payments are available to individuals, businesses and governments alike, and can be used for consumer, B2B and international payments. Trillions of dollars are moved every year through ACH payments. There are many types of ACH payment, including ACH debit, credit, direct deposit and more.

4 Reasons to use ACH payments for your business

Convenience

ACH payments are an extremely convenient option for businesses and individuals alike, mostly due to ACH debit. One of the main benefits of ACH for customers; ACH debit is a way of automating recurring payments. This is convenient for consumers who won’t need to fill out paperwork and remember to pay their bills on time each month, and there are benefits of using ACH debit for business owners, who won’t need to do any manual work to take payments.

ACH provides a far more user-friendly, efficient way of making and taking payments.

Accuracy

By taking out most of the manual work required to process payments and replacing it with an automated system, ACH payments eradicate the risk of human error. We’re far more likely to face issues due to incorrect information or mishandled data when processing payments manually; ACH benefits from being processed electronically with less room for error.

Cost

Credit and debit card payments come with processing fees that can quickly add up for businesses. ACH payments also come with a fee, but this tends to be a whole lot lower than running payments through card networks. The median cost of an ACH payment is $0.29, much cheaper than a wire transfer which is around $25 on average.  

The lower cost also makes ACH payments ideal for businesses who need to process a high volume of B2B payments, as well as for other regular payments like wages.

Security

Another advantage ACH payments have is that they’re more secure than wire transfers and card payments. This is because ACH payments must pass through clearinghouses that enforce strict regulations. Money is transferred directly between accounts, with account numbers kept confidential. While a wire transfer cannot be reversed, ACH payments are able to be returned.

On the other hand, cases of ACH fraud are rising, which we’ll explore further below.  

Disadvantages of ACH payments

US Only

An advantage that wire payments have over ACH is that ACH payments can only be made between US accounts. There are similar networks to ACH that allow you to make international payments at a lower cost than wire transfers, as well as options like SWIFT payments, but ACH payments cannot be made to overseas accounts.

Processing times

ACH payments are processed by clearinghouses in batches at set times throughout the business day, meaning they don’t occur instantly. Wire transfers, on the other hand, are processed in real time, so money can change hands almost immediately. ACH transactions may take up to three business days to be processed. Some payments are eligible for same-day processing, but most will take longer.

ACH debit transactions must be processed by the next business day, while any other ACH payment, like an ACH credit transaction, could take up to three days.

Amount limits

Some banks may impose limits on how much money can be transferred via an ACH payment. This might be a daily limit, weekly, monthly, or per-transaction, and the limits may differ depending on the type of ACH transaction. So, if you’re making a large payment, it’s important to first check with your bank to ensure it’s possible to do so via the ACH network.

Similarly, an individual may be penalized for making frequent ACH payments from a savings account to another bank account.

Payroll fraud

Businesses using ACH to process payments should be wary of the potential for fraud, especially payroll fraud. Because the payment process is automated, it is easier for employees to trick the system by providing incorrect information such as excess hours, or even to create fraud accounts for nonexistent employees.

On the other end, fraudulent businesses may dupe consumers into making payments by posing as a charity or client.

It’s important for businesses to have bank account verification systems in place, and for individuals to be careful about who they’re making payments to.

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.

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