The ACH Network processed 30 billion payments valued at $76.7 trillion in 2022, according to Nacha, the organization responsible for ACH processing rules. These represent increases of 3% and 5.6% respectively over 2021. ACH payments become increasingly popular due to their convenience and lower processing cost.
Comparing Benefits and Risks of ACH Payments
Businesses have several options for accepting payments. ACH offers a variety of benefits for both businesses and consumers.
ACH payments are generally less expensive to process compared to other payment methods like credit cards. With ACH payments, merchants can save on transaction fees, which can add up to significant cost savings over time.
2. Faster Than Checks
ACH payments typically take one to two business days to settle, which is faster than waiting for paper checks to clear. This can help merchants manage cash flow more efficiently and reduce the risk of bounced checks.
ACH payments are highly secure, with encryption technology used to protect sensitive financial information. They also have built-in fraud prevention measures that reduce the risk of chargebacks and other types of fraudulent activity.
ACH payments can be set up to occur automatically on a recurring basis, such as for subscription services or monthly bills. This can save time and hassle for both merchants and customers.
While there are several compelling benefits for accepting ACH payments, there are some risks that should be considered.
1. Fraud Potential
While ACH payments are secure, they are not foolproof. Cybercriminals can still gain access to bank account information and use it to commit fraud. Merchants need to implement proper security measures to protect themselves and their customers.
2. Processing Limits
Banks may place limits on the amount of funds that can be sent or received via ACH. The limits may be daily, weekly, or monthly. In some cases, you can request a limit increase, but this takes time and may not be permanent.
3. Slower vs. Credit Cards
Credit card transactions are processed and settled in real-time, allowing businesses to receive funds promptly. This can be beneficial for industries where immediate access to funds is crucial. ACH payments typically take longer to process, often requiring a 2-3 business days for funds to be transferred between bank accounts. Plus, payments made over the weekend or on certain holidays may take longer because networks don’t process payments on those days.
4. Returns and Reversals
ACH payments can be returned if the customer’s bank account does not have enough funds to cover the transaction. Merchants need to be aware of this risk and take steps to reduce it, such as verifying account information and setting transaction limits.
Unlike credit card payments, ACH payments can be reversed up to 60 days after the transaction occurs. This can pose a risk to merchants if they have already shipped products or provided services based on the payment. You could be charged a fee for reversals. After too many reversals, the bank may respond by require a reserve or holding payments longer.
Accepting ACH payments can provide many benefits, including cost savings, faster settlement, increased security, and greater convenience. However, there are also risks associated with accepting ACH payments, such as potential for fraud, chargebacks, lack of funds, and payment reversals.
To minimize these risks, merchants should implement proper security measures, verify account information, set transaction limits, and be prepared to handle chargebacks and payment reversals. With proper precautions in place, ACH payments can be a reliable and cost-effective payment option for businesses of all sizes.