Next to cash, credit cards and debit cards have become the most popular form of payment. According to the 2013 Federal Reserve Payment Study, the number of transactions for debit cards and credit cards is 47bn and 23.8bn, respectively; both will continue to grow at a compounded annual growth rate (CAGR) of over 6.5 percent.
If debit cards and credits cards are so popular, then why are businesses exploring other mediums for making and receiving payments?
The answer lies in the high processing cost associated with each transaction when carried out with a debit card or credit card. This is where an Automated Clearing House (ACH) transfer comes in.
Here are the 5 reasons that makes ACH, a smarter choice for businesses.
1. Lower transaction cost
One of the biggest appeals to ACH is low processing fees, compared to checks or credit cards. In a Wall Street Journal (WSJ) article, Bank of America, stated that on average an individual spends $4 to $20 on writing a check (including printing, payment initiation, authorization, signing, mailing cost, and time spent). With an ACH, however, funds get transferred between the two bank accounts through a clearing house, keeping the transaction cost very low.
Let's see how much you end up paying as a fee when you use a check, credit card, or ACH (using Forte or Authorize.Net) for a $100 transaction:
Check: $12 (Average of $4 and $20 based on the WSJ article)
Credit Card*: Approximately $2.50
ACH: Forte**: $0.25
Convincing enough to switch, right?
2. Faster processing
Settlement time for an ACH provides a happy medium between checks and credit cards. An ACH settlement can take three to four business days; a check can take five to six business days; a credit card can settle payments in two to three business days.
Furthermore, National Automated Clearing House Association (NACHA), the electronic payments association, has approved an operating rule that will make same day ACH transfer a reality. To facilitate same day ACH transfer, NACHA plans to create two windows:
A morning submission deadline at 10:30 AM ET, with settlement occurring at 1:00 PM.
An afternoon submission deadline at 3:00 PM ET, with settlement occurring at 5:00 PM.
Businesses can expect improved workflow efficiency, flexibility with payments, and quicker access to cash. However these improvements will take time to get rolling because NACHA plans to implement them in phases starting in the fall of 2016.
ACH allays some of the most common fears about checks. Unlike checks, which are vulnerable to both being misplaced and to signature forgery, ACH transfers are direct and eliminate intermediaries. Because your customer could be hesitant to provide his bank account details, some of ACH's payment processors carry out two-way micro validation to confirm the authenticity of the two parties involved. The processors makes two micro deposits of $0.01 to $0.25 in the customer's and the business owner's account. The customer has to verify the exact amount in order to begin sending money. For the business owner, this verification ensures two things: the account information he entered is accurate and there are no transaction blocks to his account.
No more cutting checks! ACH is here to make money transfers simple. ACH gives you the best of both worlds: as a payer, you say good-bye to bulky check books, and, as a business owner, you give your customers the flexibility to make a one-time payment or set up recurring payments with ACH. Furthermore, since the transaction takes place between two bank accounts, ACH saves you the trouble of following up with customers on payment failure due to card expiry.
5. Ideal for recurring billing
ACH is ideal for businesses that run on the subscription model because it allows them to accept payment in the most cost-effective way by saving them money on transaction fees. The more transactions these businesses make, the more transaction fees there are, and the more money they lose. Therefore, ACH is the best choice.
Make the switch.
Now that you know the advantages of ACH for your business, it's time to stop cutting checks. ACH is easy to use. Plus, you save money and can apply these savings to other aspects of your business. So, switch to ACH, and carry out your financial transactions in a smarter way.
*Reference for card processing fee: http://fitsmallbusiness.com/credit-card-processing-fees-2/
** Authorize.Net charges 0.75% of the total transaction amount. Forte charges $0.25 for every transaction, irrespective of the amount.