ACH and Credit Cards: A Quick Comparison

Businesses that accept credit cards, and that means most businesses, have learnt to accept processing fees as an inevitable cost of doing business. However, there is an alternative to credit card payment that can produce dramatic savings for your business. Automated Clearing House (ACH) processing can significantly cut the cost of processing payments. It can also mean increased sales, opening businesses up to consumers without credit cards or with problems with their credit card limits.

ACH is a generic term that encompasses various forms of transferring funds electronically between checking and savings accounts, including check by phone, and recurring payments direct from checking accounts. The single most significant difference between ACH processing and credit card transactions is that, with a credit card transaction, the merchant effectively captures funds from the consumer, with a guarantee of payment. An ACH transaction is only a request for funds, which can be rejected for reasons such as Non-Sufficient Funds (NSF) or a closed account.

ACH processing certainly incurs greater risks to merchants. However, the limitation of risk allows credit card to charge a percentage of the transaction as insurance against the risks involved. This is on top of the fixed transaction fee, which is generally the same for credit card and ACH transactions - usually around $0.30. This credit card charge is typically around 2.5% of the value of the transaction. In other words, for every $100 processed, a merchant is likely to pay around $2.85 for credit card transactions, and only $0.30 or less with ACH processing.

In most cases, the savings on transactions quickly outweigh the cost of the risk of rejected transactions. For a business processing $25,000 per month, the savings made using ACH processing will total something like $7500 per annum, easily outweighing losses incurred by rejected transactions.

While it is difficult to estimate accurately the number of potential consumers not using your business because they do not have credit cards or because they have problems making credit card payments, there can be no doubt that in many cases the number is significant. ACH is therefore well worth considering, both as a means of cutting business costs, and as a way of broadening the base of potential customers for your business.