What Types of Small Businesses Should use ACH Payments?

Does your business collect recurring payments from customers, clients, or tenants? Do you have a payroll? Do you sell big-ticket items and give customers the option of making several payments? Do you make large or recurring purchases for your business? If you answered yes to any of the above questions, there’s a great way to automate transactions, cut payment processing fees, and prevent problems arising from lost or expired credit card numbers. It’s ACH payment processing for small businesses.

What are ACH Payments?

ACH payments involve sending money directly from one bank to another through the Automated Clearing House Network. This network uses vendor and customer bank account information to complete the transfer of funds. An ACH credit is dropped into an account (like a weekly paycheck) and an ACH debit is removed from an account (like a monthly subscription fee).

Both types of ACH payments are sent by operators in several batches throughout each and every business day. There are no credit cards or debit cards involved, which means no fees from card processing companies. Considering that credit card processing fees can range from 2% up to almost 4% per transaction, small business ACH payments present huge savings opportunities.

Small business ACH payments can be facilitated by a merchant bank used by the vendor, or by a third-party payment processor. Bank-managed ACH payments are fine for backend transactions like a business-to-business ACH debit (like paying a supplier for inventory). However, for consumer-facing transactions, a third-party payment processor will likely offer features that provide a better customer experience.

What Kind of Businesses Should Use ACH Payments?

Businesses of all sizes should use ACH payments, especially if they are involved in any of the following industries:

Property Management: imagine the ease of collecting rent from every tenant, on time and hassle-free. Cash and check payments can’t be enforced, and they carry the risk of loss until deposited. Credit card numbers can expire or change. Nothing beats collecting rent directly from a tenant’s bank account through scheduled payments.

Education and Recreation: Private schools and other educational or recreational institutions (like afterschool programs and sports leagues) should also leverage ACH services for small businesses. Parents and adult students are busy people who might forget to pay tuition or membership fees on time. They won’t need to remember if payments come automatically from their bank account.

Health and Wellness: Gyms and spas offering monthly memberships should certainly collect their payments over the ACH network. This is especially true for gym owners or healthcare providers who are actively involved in their business and who don’t want to spend time dealing with bounced, late, or missing payments. Healthcare providers collecting out-of-pocket payments (even if they aren’t recurring) should also consider using ACH payments, because credit card numbers may change between patient visits, but bank account numbers usually won’t.

Subscription Services: The subscription service model is very popular today, for everything from streaming video to business software. Most of these services are sold online, and the ease of using a credit card number seems attractive. But a significant amount of customer churn (from changed credit card numbers) and online processing fees could be eliminated by using ACH payment processing.

What Kind of Businesses Should Not Use ACH Payments?

There are some types of businesses that should not use ACH payments. Brick and mortar retail and dining venues should not use ACH payments for point-of-sale customer transactions. Remember that ACH payments require bank account numbers — most shoppers don’t carry checks in their wallets anymore (a quick way to locate these numbers) and looking up banking info on a phone is less convenient than pulling out a credit or debit card.

That being said, these businesses could certainly use ACH payments for recurring business-to-business transactions (such as ordering inventory). Also, a retail business with an online storefront can utilize ACH payments for online purchases because they are easier to facilitate over the internet than in-person at a store location. And certainly, if your business involves any type of recurring payments, ACH is a great option.

Should My Small Business Accept ACH Payments?

As mentioned, the most significant benefits of accepting ACH payments are:

1. Savings over credit card processing
2. The reliability of withdrawing from bank accounts

Savings Over Credit Card Processing

ACH payment processing is usually significantly more affordable than credit card processing. If your business offers an annual subscription of $100 you’re probably paying $2 – $4 per customer per year in credit card processing fees (2-4%). Small business owners know that small margins add up. Imagine paying a flat-rate ACH fee instead, like ¢30 per customer per year.

The Reliability of Withdrawing From Bank Accounts

As previously mentioned, bank accounts don’t expire or get canceled nearly as often as credit cards making them more reliable on file for a recurring customer. Also, because of the pre-authorization of ACH payments, payments can be initiated by you (the business) rather than the initiative of the customer.

The Cons of Accepting ACH Payments

There are some cons to accepting ACH payments. You do need to collect additional information such as a name, bank account, and bank routing number. But for many use cases, this slight hassle is outweighed by the pros of saving money and payment reliability.

How Can Small Businesses Start Accepting ACH Payments?

You might be wondering how to set up ACH payment processing for your small business. As it turns out, you can’t interact with the ACH network directly, you need to conduct ACH payments with the help of a bank or a third-party payment processor (TPPP) like Rotessa.

Bank ACH Services

Bank ACH payment services tend to lack intuitive workflows and don’t facilitate a very good customer experience. That’s why a third-party payment processor is a must-have for customer-facing businesses. Thankfully TPPPs are incredibly easy to set up and provide friendly layouts that can plug right into a website for the benefit of customer experience.

Third-party ACH Payment Providers

Once you’ve created an account with a TPPP like Rotessa, collecting ACH payments is really just as easy as placing an ACH authorization form onto your website. The TPPP will handle all the other backend details, charging a small flat-rate per-transaction fee instead of a transaction percentage. Customers making a payment are responsible for filling in details like their name, bank account, and routing number, and selecting payment dates (if you provide them with that option).

So if you’re a small business owner, you’ve got to explore the money-saving, stress-reducing option the ACH network has to offer. You’ll be able to avoid churn on subscriptions, collect payments on time, and of course, save sizable amounts of money over the course of the business year.