What is ACH Payment?
An ACH also is known as Automatic Clearing House is an electronic method of moving funds between accounts at different banks. An automated centralized system that is responsible for routing funds from their source bank account to their designated bank account. These electronic payments have a number of benefits over other modes of fund transfer methods; which we will discuss further.
ACH Use Cases
ACH is being operated between banks directly with no middle-man hence it removes all dependencies and inconveniences that may occur in other modes of payment transfers. These features clearly benefit both merchants and consumers in many ways like…
Advantages of ACH
Inexpensive Transfers: Compared to checks or credit cards ACH offers low-cost fund transfer facilities as funds are being managed between the two bank accounts through an automatic clearing house, keeping the transaction cost very low. This feature may provide a cost-effective solution to a merchant looking to process a number of transactions on a daily basis.
Faster processing: Comparing to check payment, an ACH settlement can take three to four business days, which is a great way to manage cash flow effectively for a merchant.
Remote Payment: As ACH is an electronic payment, it removes the hassle of writing and delivering a check on time to its destination. This may save both transportation time and cost for a consumer.
Safety: Due to the digital mode of payment, ACH transfer ensures the delivery of payment and removes the threat of payment lost which often occurs in the mail or check payments.
Security: Servers and software which handles ACH payment are developed with multi-layer security modules to help provide highly secure payment transactions to the consumers. Transactions only initiated after both parties have authorized their respective banks to cooperate.
Eco-Friendly: ACH is a complete digital mode of payment hence saves a lot of papers with no paper check, no stamp, no paper receipt at all. It saves a lot of paper and travel costs as well.
Automated: Once authorized, ACH debit and credit transactions automatically take place without customers needing to process manually and keep an eye on the transaction on a recurring basis.
Types of ACH Transactions
There are normally two types of ACH transactions.
ACH Credit: Payer initiates a payment from his/her bank account which is being transmitted by ACH to your (recipient’s) bank account. Wages being paid by your employer, return on investments automatically to your bank account are the example of ACH credit transactions.
ACH Debit: ACH payments that pull payment directly from your checking account and transmit it to your creditor. Instead of paying your utility bills by writing a paper check or debit card, money moves automatically.
ACH Processing Fee
So how much does it cost to use the ACH payment method for your platform or business? Well there is no single answer. It depends on many different factors. Generally, Direct Payment or Direct Deposit transactions via ACH are free, particularly for recurring payments that you pre-authorize, however, some ACH payment providers charge a flat fee per transaction, typically ranging from around $0.20 to $1.50. Additional charges may also apply ranging from around 0.5% to 1.5% per transaction.
These flat fees and percentage fees can be higher for high-risk merchants. Sometimes, both a percentage and a flat fee are charged. For merchants with larger average transaction sizes, a per-transaction fee (not percentage) is generally the cheaper option.
Other ACH Charges
A few ACH providers may also charge additional or hidden fees as described below
Application or Setup Fee: Many ACH providers charge the merchant a one-time on-boarding fee in name of application or setup fee. If ACH payment is simply an add-on service, this fee can be waived.
Monthly Fee: This is a separate fee just for using an ACH service from your service provider. It may range from $5 – $30 per month.
Equipment Fee: This is an additional fee for renting hardware resources(like check scanner or camera) from the service provider. It can be charged monthly or annually. This fee may be considered an optional fee depending on your requirements and how you want to accept payments.
Monthly Minimum Fee: In lieu of or in addition to a monthly fee, you may be charged a minimum processing fee or ACH.
Batch Fee: Charged based on ACH transactions batches, similar to credit cards. Normally charged under $1 per batch.
ACH Return: Charged $5-$25 per instance if a transaction doesn’t go through for any given reason.
ACH Reversal/Chargeback Fee: If a customer disputes a transaction, the provider will charge this fee to merchants ranging from $5 – $25 per instance.
High Ticket Surcharge: Original intent of ACH transfer is to process low-value tickets. In case if you want to process high-value tickets(more than $5000 for example) provider may charge an additional fee to process such tickets.
Expedited Processing Fee: Typically an ACH settlement can take three to four business days if you want same-day ACH processing provider may charge an expedited processing fee. However, you may find many providers offering this service free as same-day ACH processing is becoming more common.
Check Verification & Check Guarantee: This is an add-on and completely optional service you can get from a provider at an additional fee. This would be a useful service depending on the risk level of industry you are working with.
ACH Vs Credit Card Vs eCheck: Difference between popular payment methods:
|ACH payments taken directly and electronically from checking or savings accounts.||Credit cards are revolving debt instruments that enable individuals to use borrowed money to make purchases.||eCheck is an electronic check payment that replaces what used to be the paper check.|
|ACH transactions can be rejected for reasons such as Non-Sufficient Funds (NSF). Hence ACH does not guarantee the funds.||Credit cards utilize a network to verify whether the sender is within his/her credit limit, then after the network approves the trade. Credit cards are known as guaranteed funds.||eCheck is very similar to ACH and paper version of check. eCheck payment can be also rejected for several reasons hence eCheck does not guarantee the funds.|
|Lower transaction fee, typically 20 cents to $1.50, or a percentage rate of .5% to 1.5%.||A credit card’s fee is typically around 2.5% of the value of the transaction plus a processing fee.||eCheck charges same as ACH payments.|
|The receiving party can initiate the ACH payment||The payment always initiates with the paying party.||The payment always initiates with the paying party.|
|24 to 48 working hours of processing time.||Payments are being processed almost instantly.||48 to 72 working hours of processing time.|
How ACH works with Crowdfunding?
We at Fundraisingscript.com have already integrated popular payment gateways like Paypal, Stripe, and WePay to our crowdfunding software like Reward, Donation, Equity, and Real Estate. To provide benefits of the ACH payment method, we have also integrated the Plaid payment gateway which offers hassle-free and cost-effective ACH payment processing services.
Just like any other payment method, the ACH payment method offers a cost-effective and efficient payment transfer mechanism to crowdfunding platform which not only benefits crowdfunding platform owner but also crowdfunding platform users. Let’s understand how does ACH work with a crowdfunding platform.
ACH requires 3 entities
- Payment Sender
- Payment Receiver
- ACH Payment Processor
When it comes to crowdfunding, Investor/backer becomes payment sender, campaign owner or crowdfunding platform becomes a payment receiver and integrated payment gateway processes ACH payment transaction(Plaid.com in our case).
Looking for a custom payment gateway integration service? Contact us now.
Here is a graphical demonstration of how does ACH payment work with crowdfunding:
Want to know more about ACH Payment method integration with our crowdfunding software? Contact an expert and schedule a meeting now.