Since ACH payments, eChecks, debit card transactions, and wire transfers are electronic transactions, they might appear similar on the surface, but they are pretty different. Here is how they differ:
ACH payments vs. eChecks
Most people use the terms eCheck and ACH payment interchangeably, and there are similarities as they both transfer funds electronically between two banks, but they are different in that eChecks are one-time EFT (electronic funds transfer) payments while ACH transactions depend on the customer bank account information stored with the merchant, which makes it possible to collect recurring ACH payments.
ACH payment vs. wire transfer
Wire transfers are handled by two individual banks that work directly to verify the funds and complete the transaction. If you have received a wire transfer before, you must have noticed that both banks charged a fee (sending and receiving fee).
This is because both banks have to put in the work to set up the transfer.
On the other hand, ACH transactions go through an automated clearing house, which can be defined as some electronic highway between financial institutions.
Instead of banks building their channels to move the funds between each other, they add their channels to the ACH flow.
The automated clearing house automates the flow of payments between the financial institutions, which translates to huge savings on your end as you pay fewer fees.
ACH payments vs. debit cards
While both ACH and debit card transactions pull funds from the customer’s bank account, they do so differently.
With debit cards, all you need to draw funds from your customer’s account is their card or account number, but with ACH, you need their routing and bank account number.
When a customer is making a purchase using their debit card, if the funds aren’t readily available, the merchant receives a decline message immediately from the card network, but with ACH, the merchant isn’t immediately aware that the funds aren’t available to cover the purchase. In some cases, it takes a day or two to get the message.
As you can tell, this increases the return rate. You can also be easily conned when you send out a product only to realize that the customer didn’t have enough money in their account to cover the purchase.
The fees charged on ACH payments are usually lower than with debit cards, so you save money when you use ACH payments in your business. Unfortunately, you receive the monies in your account much slower than if you had used a debit card.
ACH Vs. eChecks vs. Debit Card Transactions vs. Wire Transfers? Which comes out on top?
If your business can withstand slight delays in cash flow, ACH payments are the best option to go with. They are cheaper, and collecting recurring payments is a breeze.
Since the payments have high return rates, you should put measures in your business to counter this. You should also put a plan in place to track down a customer to recoup a payment should you send out a product, and the payment is later rejected due to insufficient funds.