If you have ever sent money through a wire transfer, you must know that these transactions do not come for free. Depending on the type and size of your business, it may be necessary for you as a merchant to incorporate a wide range of payment methods to satisfy your customers’ needs. Businesses that operate globally and virtually may have to use mobile wallets and other digital payment methods to accept payments from international countries.
These services charge a high processing fee for every transaction. It may seem small at first but can add up quickly. If you are running a small business or you are a startup, you must be looking for ways to save money on your working capital and other regular expenses. One area where you can save money is the transaction costs. By adding ACH payments to your accepted payment methods, you can save a large amount of money on transaction costs. That’s why more and more companies are now embracing ACH payments.
The biggest advantage of using the ACH transfer is that it can save you a lot of money on your bank fees. Besides, these transactions no longer take 2-5 business days to reach the recipient’s account. The method has become a lot safer and convenient for customers and merchants. Let’s understand the ACH payments and the processing fees in detail:
ACH Transactions Processing Fees
ACH stands for the Automated Clearing House located in the United States. It includes the Federal Reserve, private banks, and ACH. These bank-to-bank transactions are commonly managed by banks or credit unions. However, each transaction is automatically passed through the Federal Reserve as well as ACH.
Basically, any company or individual can request the fund’s transfer from one account to another through the Automated Clearing House payments. But, as mentioned above, a small fee for the transaction is incurred as the payment has to go through a few important steps before it arrives at the recipient’s bank account. Suppose a company has to make direct deposits to transfer employees’ salaries. They have to gather the employee’s payroll details and send this payroll file to the bank. The direct deposits are made only after the ACH receives and sorts these payment forms.
Now, the total processing fee for an ACH transfer could vary depending on the size of the transaction, the total volume of transactions, whether the company needs the payment processed the same day, and the bank accounts involved. On average, one transaction can cost you up to $0.11, however, the fees can be anywhere between $0.20 and $1.50. There is also the inflated cost that covers the cost of transferring the ACH funds, reversal fees, and other charges associated with the transfer.
Factors that Affect the ACH Processing Fees
You must be wondering ”if the average processing fee per transaction for ACH payments is claimed to be $0.11, then why does it deduct the $1.50”? Fair Question! As mentioned earlier, there are quite a few factors that play an important role in determining the total fees a merchant incurs on the ACH transactions. Let’s check them out:
- The size of your transaction (total amount transferred)
- Number of transactions
- The banks involved in the transaction
- Whether you’d like the same-day transfer
- Batch transfer fee
- Monthly fee
- Return or refund fee
- Hidden charges
It may seem pretty daunting at first, but there is no doubt that ACH fees are relatively cheaper than credit cards and other modes of transfer. Note that businesses that involve a large volume of transactions pay a lower fee. It could also be free for some users, i.e. depending on the total number of transactions they have requested and the banks they are sending the money to. In addition to the ACH processing fee, your banks may also charge a nominal fee for sending money to another financial institution. It can be between $3 and $30, but again, not every bank charges a fee for such money transfers.
The scheduled fee is another charge you might incur on the ACH payments, however, it is only for the companies that make direct deposits. For example, a company has to pay a scheduled fee for sending payments to their employees through direct deposits. The bank charges a fee depending on the number of transactions the employer executes a month and the size of each transaction. It does not cost anything to the employee, however.
Is There Any Way to Reduce the ACH Transfer Fees?
One way to reduce your ACH transfer fee is by sending the payments in batches. It is highly recommended for those who execute a large number of transactions every month. Besides, you have to understand the return and reversal fees in case the customer requests a return. Always check with your financial institution before making ACH transfers. If you think your bank is charging too much for ACH and there is no way you can save money on these transactions, you can consider switching to the API. This API can be integrated into your eCommerce website. Not only does it streamline the payment processing, but it is an excellent way to reduce your cost per transaction. It’s a software app that can process multiple ACH transactions easily.
The TPPP and banks are supposed to comply with the government’s regulations when processing the ACH transactions. The merchants and customers must use only the FDIC-accredited banks. That being said, not all ACH transfers are processed through banks only. However, if the transfer takes place outside the FDIC accredited bank, it is the company’s responsibility to comply with the KYC regulations.
Payments cleared and processed through the Automated Clearing House do come with certain fees, but it is a lot lesser than the fees you may incur from the wire transfer. So, what are you waiting for? Start receiving ACH payments through ACH API and save money on your transaction fees.