What Is an ACH Payment & How Does it Work?
Meaghan has provided content and guidance for indie retailers as the editor for a number of retail publications and a speaker at trade shows. She is Fit Small Business’s authority on retail and ecommerce.
This article is part of a larger series on Payments.
Automated clearing house (ACH) payments are simply direct bank transfers of payments between people and businesses. If you process sales online or through invoices, then ACH transfers can save you time and money. The ACH network is overseen by Nacha, which connects all US financial institutions to enable secure movement of money from one bank to another.
How ACH Payment Processing Works
Setting up ACH payments is easy, and most payment processors allow ACH payments. (See below for some of the best.) As a merchant, you provide the transaction total or subscription amount to the customer. The customer in turn shares their banking information, routing number, and account number, and authorizes the charge. The customer’s bank, the Originating Depository Financial Institution, or ODFI, releases the charge to your bank, the Receiving Depository Financial Institution, or RDFI.
This process can take one to three days. That’s because ACH payments are based on a system of credits and debits, which is tracked by the ACH clearing facilities, the Federal Reserve System, and The Clearing House Association. At the end of each day, all credits and debits are cleared and processed, which is when the transfer of funds happens.
Pros & Cons of ACH Payments
| PROS | CONS |
|---|---|
| Lower processing rates | Customers may be limited by their banks |
| Great for recurring payments | Can be delays in transfers |
| Reliable | Some banks charge fees |
| Preferred by B2B | Some banks don’t allow international transfers |
| Great for customers who prefer to pay by check | |
| Perfect for payroll | |
ACH payments are an efficient form of payment that is increasing in popularity. According to Nacha, ACH payments increased 8.2% in 2020, with the value ($619 trillion) representing an increase of 10.8%. Nacha says the pandemic and rise of online businesses is responsible for a lot of the growth. In 2020, over 2 billion new payments were added.
ACH Payments Offer Lower Payment Processing Rates
There’s no way to accept credit payments online for free, so the best you can do is minimize the cost of payment processing fees. ACH payments usually have lower fees than credit and debit card transactions. For example, Square charges 1% per ACH transfer, but 3.5% + 15 cents per transaction.
ACH Payments Are Ideal for Recurring Charges
Many small businesses that bill on a recurring basis prefer ACH payments. Some examples include subscriptions, rent or leases, and monthly retainers for services. It works better because bank account information is less likely to change than credit cards, which expire, get lost, or are canceled. In fact, Mastercard says ACH transfer is the most popular payment method for recurring payments.
Many B2B Businesses Use ACH Payments
Businesses use ACH payments more frequently than consumers. In fact, 70% of the Mastercard survey respondents said they’re “fine” with using ACH for B2B payments and 75% are satisfied with this payment option for both sending and receiving funds. ACH payments are great for large purchases like wholesale goods or equipment. (Learn more about specific B2B payment solutions.)
ACH Payments Offer Contactless & Online Solutions
As the COVID pandemic has accelerated our adoption of digital-first ways of doing business, accepting credit cards online has become critical. However, not every consumer uses credit cards or prefers this method. While there are some payment alternatives like PayPal, ACH transfers offer a great alternative for those who are more comfortable paying outright, as if by handwritten check.
Use ACH Payments When Processing Payroll
ACH payments are not just for accepting money. You can use them for making payments yourself, whether for rent on your building, supplies for your store, or payroll for your employees. Many employers issue wages to their employees via ACH direct deposit. This eliminates the paperwork and costs associated with paper paychecks. Plus, it puts funds in workers’ pockets a lot more efficiently.
Top-Rated Merchant Services With ACH Processing
Square: Best for Retail
Square
What We Like
- Free POS
- Easy to use
- Transparent, flat-rate pricing
- No monthly fees or minimums
What's Missing
- Only works with Square products
- Higher transaction fees
- Account stability issues
Square Pricing
- Basic POS system: $0
- Advanced POS system: $60/month
- ACH fees: 1% (minimum $1)
- Card-present processing fee: 2.6% + 10 cents per transaction
- Keyed-in processing fee: 3.5% + 15 cents per transaction
- Instant payout fee: 1.5%
- Virtual Terminal: $0
- Card readers: From $49 (first one free)
- Terminals: From $299
- No chargeback fees up to $250/month
- 30-day free trial for Plus plans
Square invariably ranks high on our lists of the top software for POS, payment processing, restaurants, salons, and more. Charging only payment processing fees, it’s a good choice for hobbyists, solopreneurs, or SMBs. Plus, it offers excellent tools for payments, inventory, and appointments, plus native and third-party integrations so it can grow with you.
- Free POS software (advanced software $60/month)
- Specialty POS for restaurants, salons, services
- Free online store
- Free virtual terminal
- Free invoicing/recurring payments
- Free mobile app
- Chargeback fees waived to $250/month
- Highly rated by users: average of 4.68 out of 5 on third-party software review sites and 4.67 out of 5 for mobile
Authorize.net: Best Payment Gateway
Authorize.net
What We Like
- Popular for integrations
- Reliable
- Discounts for nonprofits
What's Missing
- Monthly fee
- No POS hardware
Authorize.net Pricing
- Monthly fee: $25
- ACH fee: 0.75% per transaction
- Card-present processing fee: 2.9% + 30 cents per transaction or 10 cents per transaction and 10 cents batch fee
- Chargeback fee: $0
- POS system: $0
- Virtual Terminal: $0
- Card readers: $65
- Terminals: Third-party
Authorize.net is an extremely popular credit card processor and payment gateway that also has the best rate for ACH transactions. One drawback is the $25 monthly fee, but if you do enough sales, the lower rates may pay for it. Authorize.net integrates into over 140 certified business solutions from accounting to sales kiosks and online shopping carts.
- Plans for payment gateway or merchant account + gateway
- Free virtual terminal
- Integrates with POS systems
- Recurring payments/subscriptions
- Level 2 and 3 processing
- Often pays within 24 hours
Stripe: Best for Online Integrations
Stripe
What We Like
- Flexible
- International currencies
- 24/7 support
What's Missing
- Requires technical expertise
- Not for high-risk businesses
Stripe Pricing
- Monthly fee: $0
- ACH: 0.8% (max $5)
- In-person processing fee: 2.7% + 5 cents per transaction
- Online fee: 2.9% + 30 cents per transaction
- International cards processing fee: + 1% for cards, +1% for currency conversion
- Instant payouts: Add 1%, min 50 cents
- Discounts for volume sales, multi-products, interchange plus
- Chargeback fee: $15
- Virtual Terminal: $0
- Card readers: $59
Stripe is a leader for online payment processing because it’s such a highly integratable service. It takes more technical skill than other ACH processors on this list, but is a favorite among web designers and IT because it is so flexible. It’s ACH fee is highly competitive and the $5 cap is excellent.
- 35 countries, 135 currencies
- Easy integrations
- Free virtual terminal
- Recurring billing/subscriptions
- Free POS
- Over 700 ready-made integrations
- International transactions
QuickBooks Payments: Best for B2B and QuickBooks Users
QuickBooks Payments
What We Like
- QuickBooks integrated
- Includes invoicing
- Affordable plan for freelancers
- Discounts for high-volume sales
What's Missing
- Must have QuickBooks
- Help and support problematic
- POS system costs extra
QuickBooks Payments Pricing
- Monthly fee: $15–$150 (for QuickBooks)
- ACH fees: 1% (Max $10)
- In-person processing fee: 2.4% + 25 cents per transaction
- Keyed-in processing fee: starting at 3.4% + 25 cents per transaction
- Discounted rates for high-volume
- Card readers: From $49
- Terminals: From $119 for stand (iPad not included)
- 30-day free trial
QuickBooks Payments requires you to subscribe to QuickBooks Online, so if you need accounting software, this is a good solution. Because its fee maxes out at $10, it’s also a great choice for businesses that sell high-ticket items or services, including B2B businesses. It’s a great choice for freelancers. QuickBooks in our list for best payroll software, best invoicing software, best time tracking software, best B2B payment solutions, and more.
- QuickBooks POS (extra)
- Free virtual terminal
- Free invoicing/subscriptions
- Usually pays next business day
- Hundreds of integrations to business software
- Can set up deposits to go into different accounts
- Mobile app
Payment Depot: Best for High-Volume Sales
Payment Depot
What We Like
- Free gateway and virtual terminal
- Free mobile app
- 90-day money-back guarantee
- Integrations
What's Missing
- US merchants only
- Monthly fee
- Best only for processing over $10,000 monthly
Payment Depot Pricing
- Monthly fee: $59–$99
- Transaction fee: Interchange +
- 8 cents (Card-Present)
- 15 cents (Card-Not-Present)
- Chargeback fee: $15
- No setup fees, cancellation fees, or long-term contracts
- Free virtual terminal and payment gateway
- Most plans include free hardware
- $19.99 fee for businesses that fail to be PCI compliant
Payment Depot works best with high-volume businesses processing over $10,000 in credit card or ACH sales. It ranks among our top picks for cheapest credit card processing companies, general merchant services, restaurant payment processing, and others. While it charges a monthly fee, it offers interchange-plus pricing on transactions. Payment Depot does not specify its charges for ACH, but says that banks usually charge 20 cents to $1.50 per transaction, and that it works to get you the lowest rates possible.
- Interchange-plus pricing
- Level 2 and 3 payment processing
- Choice of virtual terminals
- Integrates with POS software, may provide it as part of a plan
- Mobile app through SwipeSimple
- International transactions accepted
- Excellent customer support
PaymentCloud: Best for High-Risk Merchants
PaymentCloud
What We Like
- Competitive rates
- Great customer support
- Same-day setup (upon approval)
What's Missing
- Non-transparent fees
- Limited support for CBD products
PaymentCloud Pricing
- PaymentCloud does not list pricing, which is common for high-risk merchant services as the rates will depend on your specific business. PaymentCloud offers multiple options for payment processing, software, and hardware. Contact sales for more information.
- Chargeback fee: $25
PaymentCloud focuses on high-risk merchants, whether because of area, industry, or items sold. In fact, it’s our top-recommended high-risk payment processor. It does not disclose rates, but Cardpaymentoptions.com lists PaymentCloud at $25 per month, with a transaction rate of 3% to 6.5% per transaction and chargeback fees of $25. This is only an estimate for a specific use case.
- High-risk merchants
- Works with multiple POS systems
- Works with multiple virtual terminals
- Recurring payments/subscriptions
- Strong chargeback protection
- Highly rated by users: average 4.6 out of 5 from third-party user review sites
Bottom Line
While you should still accept credit cards and other payment forms, ACH payment processing can help lower payment processing fees, improve the customer experience, and reduce your risk of credit card fraud. Many of the best merchant services for small businesses have built-in solutions for accepting ACH payments from customers.
You May Also Like …
- If you want to use ACH payments for employee direct deposit, see our top picks for payroll processing apps.
- Accepting ACH payments can be significantly cheaper than accepting credit cards. Learn about how credit card processing works.
- Many of our top picks for B2B payment processing include options for accepting ACH payments.
