Processing Costs for ACH Transactions

Depending on your business, you may find that you need to accommodate a wide variety of payment methods to make your customers happy. Online businesses will often use a variety of digital wallet types—from mobile wallets to PayPal or Venmo. Even then, processing fees charged by PayPal and credit card companies can add up quickly.

One way to reduce these fees is by enabling ACH transactions. Gone are the days where ACH transactions take 3-5 business days to process. Instead, these transactions can be processed immediately, making payments guaranteed and faster than ever.

In order to better understand how much ACH transactions will be costing you, this article will break down:

  • The average cost of processing an ACH transaction
  • The variables that affect the cost of processing an ACH transaction
  • The legal regulations for ACH transactions

To set your company up for success, it’s important to allow a wide range of payment options, from credit card payments and debit transactions to cryptocurrency transfers, accepting ACH transactions will do this for you. 


Average Cost of Processing an ACH Transaction

An ACH transaction, also known as a transaction that goes through the Automated Clearing House (i.e., the ACH network), is a common bank-to-bank (B2B) transaction. These transfers are either direct deposit via ACH (ACH debit) or Direct Payments via ACH (ACH credit).

In the U.S., these transactions are typically facilitated by a bank or similar financial institutions (like a credit union), but all money eventually flows through the Federal Reserve and the National Automated Clearing House Association (NACHA; operated by private, commercial banks). These requests allow one person or company to pay another by transferring funds from one bank account to another. 

Fees for processing ACH transactions exist because there are several steps that need to occur throughout this process. In the event of a direct deposit, for example, a company will typically collect the payroll information for the employee. Prior to payday, the company will submit a payment file to their bank account. The bank then sends batches of ACH entry forms to the ACH Operator (NACHA). Once the forms are sorted, ACH debits can be made.

NACHA states that the average cost of one ACH transfer is $0.11, but this can range from $0.20 to $1.50. These costs depend on the average size of the transaction, the volume of transactions submitted by the company, if it is processed the same day, and the bank you are using. Inflated costs may be incurred, including the cost it takes to send these ACH payments, a batch submission fee, or an ACH return or reversal fee. Some providers will charge a flat fee, whereas others charge a percentage fee. 

Certain ACH APIs offer more flexibility in how ACH payments are processed. For example, mobile APIs, such as Sila’s API, allow more accessibility in how ACH payments are processed as a way to reduce these fees.


Variables That Affect ACH Transaction Fees

If NACHA claims that it only costs on average $0.11 per transaction, then why are you being charged upwards of $1.50 per transaction?

As mentioned previously, there are a number of factors that affect an ACH payment transaction fee. These include:

  • The average transaction size
  • The volume of transactions submitted by the company you are submitting your ACH transaction to 
  • Whether or not your provider uses same-day ACH
  • The size of the bank
  • Monthly ACH transfer fees
  • Personnel costs of the provider or the third-party payment processor (TPPP)
  • Batch fee (typically per batch, < $1)
  • Incidental fees; NSF fees (ACH return or bounce)
  • Incidental fees; the ACH needs to be charged back (refund) 
  • How a bank charges fees (percentage or flat-rate)
  • Any hidden fees

Unfortunately, as a customer, you cannot control how the company you use operates when processing ACH transactions. And in ways, this can harm your business. If a company does not clearly state, nor determine, how ACH transactions should operate under ACH risk management guidance, then it could be costing you in increased fees or transaction risk due to increased credit and compliance, among other factors. And companies need to recognize (if they have not already) that not only will a proper ACH processing plan provide extra security, but will also reduce the cost and weight of ACH transfers. 

Much of the cost savings are in the automation of ACH transfers. The more often your company processes ACH transfers, then the lower the associated fees will be. ACH payments can be automated through a billing schedule, so no personnel is needed to send those requests or update accounting. Since ACH transfers are all online, using them more often will also reduce costs (and risks) associated with office supplies, paper checks, wire transfers, account verification, or dealing with creditors.

Another way to reduce this cost is by implementing ACH APIs into your payroll software. ACH APIs, like Sila, makes moving money faster, easier, and more affordable than traditional ACH payment methods.


How to Determine What to Charge Per ACH Transaction

Determining what to charge per ACH transaction will depend not only on the type of payment processor you use but also on the means in which your business must make the transaction. You must also consider things like incidental fees that you could be charged, PCI fees (compliance with the Payment Card Industry Data Security Standard; PCI DSS), the cost to produce statements, the cost for setting up an account or transaction, and how your bank processes ACH payments.

Largely, determining the amount to charge will benefit from a discussion with your bank or TPPP. They will be aware of the potential risks of not charging a certain amount, and the likelihood of certain risks or fees being charged in the first place. 

ACH transactions will have four fee types:

  • Account fee—covers account maintenance, maintaining processing systems, fraud protection, IRS compliance, etc.
  • Debit fee—covers processing the debit, typically ranges from $0.15 to $0.95 and depends on the transaction risk.
  • Credit fee—covers processing the credit, typically ranges from $0.15 to $0.95 and depends on the transaction risk, might be larger than debit due to higher dollar amount.
  • “Discount” fee—a percentage-based fee that is applicable only in certain scenarios, for example in a high-risk industry or to cover fraud potential.

There are different types of ways to go about charging for ACH transfers, which is based on models for how credit card rates of determined. Deciding between these three ways could alleviate any pressure from troublesome clients or overcharging good clients:


Blending Rates

One of the best ways to encourage client retention is to charge a blended rate. A blended rate is a middle-ground rate. Instead of charging each transaction for each infraction, a blended rate assumes that there is a risk of all the infractions each time based on the average likely occurrence that each transaction is bound to happen. Blended rates can be percentages (typically < 3.0%), or flat rates ($0.30).


Interchange-Plus Pricing

This model will take into account other payment method types. If your client base is reliant on credit transactions, then interchange-plus pricing will combine all these potential payment types into one average. The clients should be provided documentation on what it means, but this model could keep prices lower, particularly for credit card processing, and therefore clients feel grateful even if they have to use credit.


Tiered Rates 

Tiered rates are usually for credit card transactions and are a very uncommon method of payment. This model categorizes the type of credit card transaction and determines fees based on the standards of the TPPP.


Legal Regulations for how ACH Transactions are Paid

Legal regulations govern how financial institutions and TPPP process ACH transactions. In order to maintain compliance, it is important that you are banking with an FDIC accredited bank. ACH blocks can also protect a company by requiring approval on all ACH transactions. 

ACH transactions are protected under the NACHA rules and regulations, but federal protection only protects a business to a point. Federal protection for fraud falls under the Uniform Commercial Code (UCC). While banks must compensate individuals under UCC, this coverage does not necessarily apply for businesses.  For example, if you do not report fraudulent activity in a checking account within 1 day, then the company will be held liable for reconciling their accounts. 

If ACH transactions are processed outside of a bank, then businesses should be aware of Know-Your-Customer (KYC) regulations, and the regulatory oversight of Electronic Funds Transfer (EFT).

If you are using an ACH API, understanding these regulations will fall on your company. If you are using an ACH API supported by a company, such as Sila, then you will have the support of financial experts who know these regulations as well as the regulations applied to the use of blockchain. These experts can work with you and help support your small businesses’ needs.

If you are a small business or an entrepreneur, then you are well versed in trying to find the lowest price for all your operating expenses. From banking fees to subscriptions, every penny matters. 

Minimizing operating expenses or startup costs does not only help businesses thrive, but it can make or break them. One area in which expenses can add up is in transaction costs. Accepting ACH payments is one of the best ways to address and reduce these costs.