The tools small businesses use to pay and get paid online are continually evolving. The most secure and well-established payment systems are ACH, credit cards, wire transfers and eChecks: Each system has advantages and drawbacks.
ACH (automated clearing house) is a service offered by most major banks and by services like PayPal. It allows for the transfer of funds between two accounts and often makes the money available the same day. ACH payments typically cost between $0.25-2.00 per transaction. Same-day payments and inclusion of remittance data will increase the cost.
ACH payments are best for sending money to trusted partners that businesses pay frequently. The recipient of the funds must complete an enrollment process and provide their bank account information. Some vendors do not accept ACH for security reasons. Furthermore, the terms and conditions around ACH transfers can vary drastically based on your bank. Review the terms carefully before sending money this way.
“For recurring payments like payroll, ACH is a great payment solution because it’s very low cost, but for vendor payments it doesn’t work very well,” says Chris Clausen, Director of Payments and Transactional Solutions at Deluxe Corp.
Credit cards are an easy, instant way for businesses to get paid for goods and services. This method is ubiquitous among consumers, and credit card companies often bear the brunt of fraud risk. However, this method can prove expensive: The merchant will pay 2-6 percent of every credit card transaction in fees, plus the cost of the system used to process the transaction. Businesses sometimes increase their prices to cover the cost.
“Cards are great for the payer, but the payee pays a lot in merchant fees,” says Clausen.
Other drawbacks for paying by credit card include spending limits and lack of remittance information: If your business is paying an invoice by credit card, it’s not always easy to convey the invoice number or other details the recipient needs to properly track and record the payment.
Deluxe eChecks merge the ubiquity and security of a check with the speed of a credit card. eChecks allow businesses to send checks instantly via email, and they cost roughly 50 cents per check. The sender writes a check through a secure online system and emails it to the recipient, who retrieves it from the system and prints it on their own printer. There are no limits to the amount of transactions that businesses can send each month.
“Some ACH terms have limits about how many transactions you can do and how many dollars you can transact. One of the big benefits for eChecks is there are no limitations on the number or amount of transactions,” says Clausen.
Deluxe eChecks are useful for paying vendors, contractors, employees and other partners. The system does not require the recipient to create an account or share their banking information. However, it does require the recipient to share their email address and print the check themselves.
Wire Transfers are best for transmitting massive sums of money and are typically used by corporate entities. The flat fee for each transfer is $25-50, depending on the bank. The parties involved in a wire transfer must also visit a bank to complete the necessary paperwork to complete each transfer.
Due to the high cost and increased time investment, wire transfers are not typically the best choice for small businesses.
“Each payment system has issues that make it difficult for it to be used 100 percent of the time. That’s why we say most businesses are going to need more than one type of payment. It’s important to understand the fraud risk and the rules, and how customer needs are evolving,” says Clausen.