ACH payment processing in B2B is on the rise—PYMNTS recently shared that B2B same-day ACH transactions increased by 11.7% in the first quarter of 2023. The value of these payments leapt about 95% to $565.3 billion and the number of payments increased about 21% to 186.2 million.
ACH as a payment gateway caught the eyes of business leaders during the pandemic as digitization processes needed to be hurried forward. A March 2022 PYMNTS report shared that 68% of chief financial officers reported an increased use of ACH at their firms due to digitization since the pandemic’s onset, making ACH the number one payment method in terms of being used more frequently.
With B2B’s migration online, merchants and buyers alike are searching out more cost-effective, efficient payment methods like ACH. Convenience matters, too: given that anyone with a US bank account number can send and receive ACH payments, it is only natural that their popularity is increasing as a B2B payment method.
In this blog post, we’ll break down everything you need to know about ACH payments processing for business transactions in 2023, and how to choose the best payments processor for B2B.
What are ACH payments?
ACH, or Automatic Clearing House, refers to the electronic payment network responsible for the movement of funds, and connects all bank accounts in the United States. Developed in the 1970s, ACH transactions remain a popular business payment method until today as an alternative to using the credit card network or using checks. They are considered to be a type of electronic funds transfer (EFT).
How do ACH payments work?
Payment is sent via a routing number, essentially an “address” for the bank account. This network is governed by Nacha, the National Automated Clearing House Association.
Credit card payments vs. ACH payments
Credit cards, initially created for consumers, have become an increasingly common business payment. But at what cost? Credit card payments do not align with the B2B purchasing journey, and often create unnecessary headaches and friction for all parties involved. In fact, Bloomberg recently reported small businesses are increasingly facing extreme difficulty in accessing credit, damaging cash flow. This further illustrates that credit card processing is simply not the best option for B2B.
Types of ACH payments
There are two types of ACH payments, and they both are considered direct payments:
- Direct deposits
- Direct transfers
Direct deposits refer to any transfer made from a government entity or business through the ACH network to a consumer’s account at a financial institution. The most common example of this would be employee payroll, sent directly to a checking account.
Direct transfers refer to individuals, businesses and other organizations that send money to one another. For example, when a business chooses to pay another business via ACH direct transfer, the organizing business “sends” the money through the ACH network, debiting their bank account and crediting the receiving business’s bank account.
Differentiating ACH and wire transfers
How does ACH differ from wire transfers? While both are alternatives to using the credit card network to move funds, ACH and wire transfers are different processes. While wire transfers are processed the same day they are requested, ACH can take several business days to process, because they are processed in batches. ACH transfers can be held up depending on the time of day the request was made or if the payment fails. It is important to note that same-day ACH transfers also exist as an option as of 2018. In general, however, wires are more instant than ACH.
Pricing of ACH transfers vs. wire transfers
Transaction fees exist for both ACH and wire; however, ACH transfers are cheaper than wire transfers. Wire transfers can cost upwards of $50 in processing fees, both for the incoming party and the one sending the funds (originator). The processing fee also varies depending on several factors, including recurring transfers and account type.
ACH transfers, on the other hand, cost on average $0.25 to $0.75 per transaction (usually a flat fee), or a 0.5-1% rate per transaction.
They are free to receive, meaning there is no transaction fee for the receiving party. Same-day ACH costs a bit more, and also have no transaction fee to receive.
The drawback of ACH payments processing
The biggest drawback of ACH cited by business professionals is processing times. For an organization looking to unlock cash flow immediately, a several-business day processing time following a customer payment is not ideal.
What’s more, federal holidays, weekends and time of request can all impact how quickly an ACH transfer is processed, and same-day ACH transfers are not universally available. ACH is the only type of EFT that is settled in batches. Most other EFTs, such as digital wallets, ATM transactions, and debit card payments, are authorized instantly.
Another drawback of ACH payments is receiving return codes. Return codes occur for ACH payments most commonly because all or some of the bank account details are incorrect. In other cases, the payment could be returned due to concern of fraud.
When an ACH payment is returned, the Receiving Depository Financial Institution (RDFI) will get the return code. Eventually, the originator, or the sending business who set up the transaction request must be notified by the RDFI that the payment cannot be completed for whatever reason.
For the purposes of this piece, we will not dive into return codes. See here for a full list of common return codes. Here are two of the most common ACH return codes:
R01 insufficient funds
ACH payments can be delayed significantly due to insufficient funds. When this happens, the merchant account/originator will receive an ACH return code from the RDFI and should address this immediately with the buyer. The buyer will need to ensure there are sufficient funds in their account before retrying the ACH payment.
R03 No account/ unable to locate account
Usually this return code comes when the originator sent bank account details are not correct.
Benefits of ACH payments processing for business transactions
Why should a manufacturer or wholesaler offer ACH payments processing to customers? From small businesses to enterprises, ACH payments offer the following benefits:
As mentioned in the last section, ACH payments processing is a significantly cheaper alternative to credit cards for both the sending business and the receiving business bank account. There is no monthly fee to use ACH payments.
ACH payments offer convenience as invoices and paper checks are eliminated. They also require little or no labor to enter into a record-keeping system, as banks create an electronic record during every transaction.
For buyers, a paperless payment experience is an elevated experience. The ACH payment experience also sits above the echeck (electronic check) experience. With ACH, buyers can schedule payments to streamline the process further.
Any business with a US bank account is eligible to pay and receive payment via ACH. All they need to do is provide their account details to the relevant party.
The typical lifespan of a credit card is 3 years, while a bank account is typically held for 14 years, greatly reducing the chance of a missed payment. Unlike credit cards, there is no expiration date to keep track of, and as a result, one less reason why a payment could be declined.
Because ACH is managed by the US government, there are baseline security protocols that those involved are required to meet to protect sensitive information such as payment details, and are comparable to the standards of credit cards. There are also several ways to go above and beyond those standards to ensure greater security.
How to choose the right ACH payments processor for your business
When choosing an ACH processor, it’s important to consider who your customers are and their needs, what ecommerce platform you’re using, and your B2B ecommerce roadmap. For a B2C company, choosing an ACH payments processor is a much more simple task, as the restraints and needs of consumers are typically less complex.
But those in the B2B space need an ACH payments processor can handle the specific needs of businesses when it comes to payment terms and transactions, including but not limited to:
- Recurring payments
- Installment agreements
- Milestone payments
- Payment terms for business customers
What’s more, a frictionless online experience is still not a standard in B2B today, and most payment options aren’t compatible with an ecommerce experience or are simply not electronic payment tools.
For businesses that need to optimize the conversion of deals, forecast AR over time, and keep their customers happy with flexible payment options—all online—a B2B-first ACH payments stack is essential.
ACH payments processing with Balance
Unlike other payment processing solutions that may be geared towards B2C transactions, Balance is specifically designed to handle the unique requirements of B2B payment flows.
With Balance, everyone from small businesses to enterprises can offer ACH payments alongside other online payment options like wire and credit card in a consumer-grade checkout to give their buyers ultimate flexibility in how they pay, while enjoying the benefits of timely payments, optimized cash flow, and reduced risk.
In addition to being an ACH payments processor, Balance offers embedded financing and assessment to enable customers to purchase with net terms, all at the point of sale (POS). With integrations for Shopify Plus, BigCommerce and Magento, merchants can use Balance no matter where their ecommerce site lives.
With embedded financing at the POS, full collection handling, multiple payment methods, and through supporting a range of payment flows—both online and offline—Balance makes business transactions smarter and more efficient. Learn more today.