As a merchant, you are bombarded with numerous payment options you can offer your client base. Many assume a debit card payment is the same as an ACH payment since both are linked to a customer’s checking account, but the differences are noteworthy. Let’s dive deeper into both forms of payment to make an informed decision on which is right for your business.
What is a Debit Card Payment?
Issued by a customer’s bank, a debit card directly links to a customer’s checking or savings account. Monies transfer immediately and electronically when purchasing goods or services. Most typically, the card is branded by Visa or MasterCard and can be used anywhere a credit card is accepted. If funds are not readily available, a merchant will immediately receive a decline response from the card network. Debit cards can be processed with or without a PIN (personal identification number), and a cash-back option can be offered.
What is an ACH Payment?
ACH stands for Automated Clearinghouse, and it is an electronic check payment transaction. This payment method is managed by NACHA or the National Automated Clearinghouse Association. An ACH payment utilizes the customer’s routing and bank account number to pay for goods or services electronically. ACH payments substantially save time as the need to deposit paper checks daily physically is eliminated. When accepting an ACH payment, a merchant is not immediately aware if funds are available to cover the purchase cost.
Debit Card vs. ACH Payments – Which Comes Out on Top?
ACH payments are generally cheaper to accept as the payment does not need to go through the card network for processing. This eliminates many costs associated with debit card processing, such as interchange rates and assessment fees. While the cost may be less, when you receive the monies in your bank account is substantially longer than a debit card payment. Debit cards are considered to be processed in real-time, and therefore are available sooner. ACH payments need to be batched and processed and delay funds being readily available quickly. While next-day funding is available for ACH payments, the offering is typically reserved for top-notch merchants. The standard processing time for ACH payments is between 3-6 business days.
If your business can withstand a slight delay in cash flow, then ACH payments may be a viable option. However, is it noteworthy to discuss that ACH payments have a higher return rate than debit cards. Since an immediate approved response is not received, there is a risk the payment can be returned as NSF or non-sufficient funds. Tracking down a customer to recoup payment can be a costly endeavor after goods or services are received, so ensure your company has a plan in place to pursue the matter should it arise.
A final consideration when discussing debit card vs. ACH payments is the ease of use. The majority of consumers today carry a debit card around in their wallets. The odds of a customer having access to their routing and bank account number when paying for a good or service are substantially slimmer. There is potential to lose out on a sale if the payment methods your business offers are not convenient to your customer base.
ACH vs. Credit Cards
While this article’s subject is ACH vs. debit cards, we will briefly touch upon credit cards. The main benefit of ACH over credit cards is that it circumvents the credit card and charge card networks such as Visa and MasterCard making ACH a less costly option than credit card payments. The main drawback for ACH when compared with credit cards is that funds are not guaranteed. For instance, ACH transactions can be declined if there are non-sufficient funds or an account has been closed before the payment has been processed.
Debit Card vs. ACH Payments – Ready to Make a Decision?
Ultimately which is better for your company depends on various factors outside of what is discussed here. Is your business internet-based or a brick-and-mortar establishment? Will you be processing payments regularly, or will they all be one-time transactions? Is the good or service received immediately, or does it need to be shipped to the consumer? Still confused on which to offer – reach out to Payment Savvy today to discuss your scenario. Our Savvy Squad are experts in all facets of payment acceptance. We will work hand-in-hand with you to create the perfect payment solution for your current business needs and future goals. We look forward to hearing from you!