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ACH or Credit Cards
by Wayne Akey
Most businesses accept credit cards and consider the process
fees a cost of doing business. However by implementing an ACH
payment system you can realize dramatic savings and increase
sales.
ACH refers to the Automated Clearing House and generically means
moving money electronically to and from checking and savings
accounts. An example would be a check by phone or taking
recurring payments directly from a checking account.
The MAJOR difference between ACH and credit card processing is
that a credit card transaction "captures" the merchant's funds
from the consumer and essentially guarantees payment. An ACH
transaction is a request to transfer funds. The transaction may
reject for several reasons with the most common being NSF (non
sufficient funds) or a closed account. The funds are not
guaranteed.
It is the guarantee piece that allows the credit card company to
charge a percentage of the transaction to cover the risks
involved. Typically a transaction will consist of a discount
rate, 2.5% for example and a transaction fee, typically in the
30 cent range. This means that every $100 processed incurs about
$2.85 in merchant fees.
Contrast this with an ACH transaction. Typically there is no
discount rate just a .30 (or less) transaction fee. If you
process $25,000 per month using ACH processing will save around
$7500 per year. Certainly you will have more "failed" sales due
to ACH transaction rejects (eg NSF) but your transaction savings
will far exceed these losses. In addition you will appeal to a
much wider range of consumers. Estimates vary but MANY people do
not have credit cards or are at their limit on their cards. So
the benefits are two fold-much reduced transaction fees and a
new payment vehicle for your customers.
So consider ACH processing for your business. It will save you
money and win new customers.
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