ACH Credit & Debit Payments Explained

Posted on February 21, 2024

Did you know that credit card fraud accounted for a staggering $28.65 billion in losses globally? With the rise of digital transactions and recurring bill payments, businesses seek secure and efficient alternatives to traditional credit cards. That's where Automated Clearing House (ACH) payments come into play.

ACH, well known for simplifying billions of transactions yearly, facilitated $5.94 billion in B2B payments in 2022 alone. 

ACH transactions seamlessly move money from one bank account to another. It enables direct deposits, loan repayments, mortgages, bill payments and much more.

This article first explores ACH Credit and its predominant role in payroll transactions. Then, we delve deeper into ACH debit, illustrating how it's replacing credit cards, particularly benefitting SaaS businesses. 

Understanding ACH Credit 

ACH credit, like a digital check, allows the transfer of funds from one bank account to another. However, it's important to note that both parties involved, whether individuals or businesses, must provide explicit authorization for the transaction.

In other words, you can't simply push money into or out of someone's bank account without formal permission. This safeguard ensures that ACH credits are a secure and reliable method of transferring funds. To initiate these payments, you only need a few essential details, including the recipient's name, routing number, bank account number, and basic transaction information.

One prominent use case for ACH credits is in payroll transactions. Many businesses leverage ACH credits to deposit paychecks into their employees' accounts.

Through automatic recurring ACH credit transfers, employers can conveniently push funds from the company's account to the individual employee's account. This streamlined approach simplifies the payroll process and ensures timely and reliable salary deposits for employees.

Whether you are an employer seeking an efficient payroll solution or a business looking to provide seamless refunds, ACH credits can simplify your financial transactions and save you time and resources.

Exploring ACH Debit

Imagine a famous streaming service with millions of subscribers. Let's say 5 million subscribers. If each of those subscribers has a recurring payment charged to a credit card, how many will fail due to expired card details or limits? Furthermore, what percentage will be disputed or result in chargebacks?  

Recent studies reveal 41% of subscription businesses encounter credit card payment failures, resulting in lost revenue, customer churn, and mounting frustrations for both companies and consumers.

The good news is that ACH debit has emerged as a reliable and cost-effective alternative to credit cards, particularly targeting subscription businesses. So, how does ACH debit work its magic?

ACH debit, also known as a "pull" transaction, involves the receiver taking funds directly from the payer's account.

One significant advantage of ACH debit transactions is their speed. They occur faster than ACH credit transactions, thanks to the rules implemented by the National Automated Clearing House (NACHA). According to these rules, ACH debit transactions must be completed in one business day.

ACH debit also offers streamlined recurring payments, making it easier for businesses to manage subscription billing. With the payer's authorization in place, companies can automatically pull funds from their customers' bank accounts on a recurring basis. 

This automation simplifies the payment process and improves customer retention by ensuring seamless and hassle-free transactions.

ACH Payments vs Credit Card Payments

While credit cards have long been the go-to option for convenience and rewards, ACH payments offer cost-effectiveness, security, and streamlined recurring payments. Here are some key comparisons:

Reduced Cost 

Credit card payments often incur fees of around 3% per transaction, while ACH payments are significantly more cost-effective, going as low as $1 for fixed-cost processing.

Recurring Payments Simplified

Credit cards have long been associated with easy setup for recurring payments, but ACH solutions offer an equally straightforward and seamless process.

Credit Card Tokenization

ACH services have caught up with credit cards by offering the capability of tokenization, ensuring secure and encrypted payment information storage.

Added Security

Many businesses still rely on checks as their primary payment method despite the prevalence of check fraud. In contrast, ACH payments adhere to stringent regulations enforced by clearinghouses. Business ACH payments are safer due to direct transfers of funds and the confidentiality of account numbers.

ACH payments are a great choice for recurring payments, providing convenience for customers and cost savings for businesses. Customers can also find ACH payments easy to understand since they are familiar with direct debit payments. 

Unlock The Full Potential of ACH Payments

ACH credit and debit payments offer unique advantages for various business needs. 

Gain access to advanced ACH payment processing and connect your business to a robust bank account payment network through a single API integration. 

Leverage the benefits of ACH transfers with flat-rate transaction costs and effortlessly push or pull ACH payments at scale.

Upgrade your business's payment capabilities today! Book a demo.
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