The digital payments landscape constantly moves forward and businesses must carefully consider the cost implications and long-term savings associated with different payment methods.
This blog post explores the real advantages and disadvantages of processing ACH payments versus credit card payments. We will dive into the differences in costs, fees, and the payment process, highlighting how both ACH payments and credit card payments offer unique benefits and drawbacks.
Credit Cards vs. ACH Payments: Understanding the Differences
Automated Clearing House (ACH) payments involve electronic transfers of funds between bank accounts. They are commonly used for recurring payments such as payroll, bill payments, and business-to-business transactions. Credit card payments rely on card networks and involve the use of physical or virtual cards to facilitate transactions.
4 Benefits of ACH Payments over Credit Cards
Lower Transaction and Processing Fees
One significant difference between ACH payments and credit card payments lies in the processing fees. ACH fees are typically lower compared to credit card fees. While credit card processing fees include interchange fees, assessments, and other charges, ACH fees are often a flat fee per transaction or a monthly fee for unlimited transactions.
Though the ACH fees vary among different processors and banks, most typically charge a minimal amount per dollar. Some payment processors may impose a fee of 1-1.5% for larger transactions, but this often has a maximum limit of $5.
In contrast, credit card transactions involve a percentage fee ranging from 1.5-3.5%. Wire transfers, another frequently used alternative to ACH for substantial transactions, can incur charges up to $65 per transfer, although the average cost at most banks is around $35.
This cost disparity makes ACH a more cost-effective option for businesses, particularly those with a high volume of low-value transactions.
Enhanced Security and Reduced Fraud
While both credit cards and ACH payments can be targeted for fraudulent activities, ACH payments generally have a lower risk profile. The reason behind this is the lengthy and standardized authorization process that ACH payments undergo, coupled with the fraud detection measures implemented by banks. Credit card fraud is a widespread issue. It’s also relatively easier for fraudsters to acquire the essential credit card information needed to carry out unauthorized transactions.
Once an ACH payment has been processed, it is generally irreversible and indisputable, except in unusual cases like unauthorized transactions or fraudulent activities. However, there can be instances of chargebacks, which occur when a transaction fails due to reasons like insufficient funds or other errors. Disputes on credit card payments can be initiated by the account holder, triggering an investigation to determine whether the charge was fraudulently made or not.
Streamlined Reconciliation and Cash Flow Management
Processing ACH payments simplifies the reconciliation process for businesses. Detailed remittance information accompanies ACH transactions, allowing for easy matching of payments to invoices and reducing the time and effort required for manual reconciliation. This streamlined process enhances cash flow management and enables businesses to allocate resources more effectively. Credit card payments may require additional reconciliation steps due to varying transaction fees and processing times.
Reduced Customer Churn
Credit cards generally have a lifespan of three to five years due to loss, theft, or expiry. In contrast, bank accounts are typically used for an average span of 17 years. Once a business establishes a connection with a customer’s bank account for ACH payments, the likelihood of payment disruption is significantly reduced. This helps in minimizing drop-offs and boosting long-term revenue.
2 Benefits of Credit Cards over ACH Payments
While ACH payments offer cost advantages and enhanced security, credit cards also provide unique benefits for businesses.
Instant Settlement
Credit card payments settle instantly, allowing businesses to receive funds immediately. This can be particularly beneficial for companies that require rapid access to funds for operational purposes or cash flow management. ACH transactions typically took a day or two to transfer between accounts.
This delay in ACH settlement time has significantly improved through the implementation of same-day ACH. As opposed to settling within a day or two, same-day ACH allows payments to be finalized within the same day. Same-day ACH’s popularity is skyrocketing, with a substantial growth of 94.4% in 2022, reaching a total transaction value of $486B.
Consumer Preferences
Credit cards are familiar and widely accepted, making them a convenient payment method for customers. By accepting credit cards, businesses can cater to the preferences of a broader customer base and potentially increase sales. Moreover, credit cards often come with rewards programs and incentives, attracting customers who value loyalty programs or cashback opportunities.
Credit Cards vs. ACH Payments: Which Option is Best for Your Business?
Both ACH payments and credit card payments offer distinct advantages and considerations for businesses. ACH payments provide cost savings, enhanced security, and streamlined reconciliation processes, making them an attractive option for businesses with recurring transactions and a focus on long-term savings. On the other hand, credit card payments offer instant settlement, broader customer acceptance, and the potential for customer loyalty benefits.
To optimize your payment processes and maximize cost savings, partner with a payment solutions provider like ReliaFund that provides both options. By leveraging our expertise and innovative technologies, businesses can seamlessly integrate ACH and credit card payments into their operations, achieving the optimal balance between cost efficiency and customer satisfaction.
Connect with us today to find out how we can help empower your business with reliable, secure, and cost-effective payment solutions.