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ACH and Digital Bank Payment Options

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Aug 10th 2016
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Getting paid via credit card has become the de facto payment method for online invoices, but with that convenience comes high fees. If you or your clients are looking to get paid electronically without the high fees, ACH (Automated Clearing House) is the way to go.

In the past, ACH wasn’t a popular option for cloud accounting software, but now there are many integrations that allow you and your clients to add the payment options to invoices. There are two main ways to add ACH payments to your online invoices: Direct payment processor integrations and payment processors.

Integrating your cloud accounting software with a payment processor allows you to add a “pay now” option to your online invoices sent out through your cloud accounting software. It’s generally quite easy to set up.

Here are just some of the common payment processing integrations:

While direct integrations with payment processors are handy, they also tend to offer limited functionality. Recurring subscriptions are generally not possible and there’s less flexibility around how you bill out customers. If you’re looking for more control, you’ll need to turn toward the accounts receivable apps.

So, let’s explore those integration options:

Intuit Payments
They’ve been accepting ACH payments for a long time, and in the early days of cloud accounting software this was one of the benefits of going with QuickBooks Online.

Pros

  • Fees are cheap, at $0.50 per transaction.
  • Established for a long time.
  • Quick and easy to set up.

Cons

If you’re using QuickBooks Online, using Intuit Payments is a no-brainer because it’s the only available option.

Authorize.net
This service allows you to accept ACH payments, but it’s not a default and it’s a bit of a hassle to set up (being a traditional payment processor).

Pros

  • They’ve been established for a long time.
  • Largest amount of integrations.

Cons

  • Fees are not cheap, at $0.35 + 0.75% (plus you also need to pay a monthly fee).
  • You have to specifically sign up for their ACH service.
  • Not as easy to sign up for as other payment processors.

Integrations: Xero, Zoho Books, and FreshBooks

Stripe
Stripe started accepting ACH payments in 2016, so they’re a relatively new player. Customers paying through Stripe have two choices to authorize payments: through micro-deposits, or via Plaid. Micro-deposits generally means that two small deposits (under $1) will be sent to a customer’s bank account in order to verify that the customer controls the account. The process usually takes two to three days. After that, they can pay via ACH. Plaid is much simpler and faster than micro-deposits – you log in to your online bank to verify that you control the account.

A point to note about Stripe is that while the payment processor itself allows for ACH payments, its integrations with cloud accounting software have, for the most part, yet to add that ability to their online invoicing. I expect this to be a temporary issue.

Pros

  • Capability of charging for subscriptions.
  • No monthly fees.

Cons

  • Transaction fees are 0.80%, but capped at $5 per transaction.
  • ACH is currently not possible with most cloud accounting software integrations (although it is available with 17hats).
  • Customers must verify their bank account, which can add time and hassle if using the micro-deposits verification option.

Integrations: Xero, Zoho Books, FreshBooks, 17hats (only accounting software that has ACH enabled). Read more about ACH payment authorization with Stripe here.

Forte
Forte is owned by Wells Fargo and is at the moment not a big player as a payment processor for cloud accounting software. Its only integration so far is with Zoho Books.

Pros

Cons

  • Only integrates with Zoho Books.
  • Application process is more like a traditional merchant account (vs. the easier application style of Stripe, Braintree, or Square).

Integrations: Zoho Books

PayPal Business Payments
PayPal Business Payments is not actually ACH, but for all intents and purposes the end result is somewhat similar. You receive funds into your PayPal Bank account directly from a customer’s PayPal balance or their bank account.

Pros

  • Low fee $0.50 per transaction.
  • Easy account setup.
  • No monthly fee.

Cons

  • Customer needs to have PayPal account.
  • The PayPal Business Payments options isn’t available with all accounting software integrations.

Integrations: Zoho Books, Freshbooks, GoDaddy

Dwolla
Dwolla is mostly a white label payment processor, and as such has a deep integration with GoDaddy Bookkeeping.

Pros

  • No monthly fee and transactions under $10 are free (and over that they’re only $0.25).
  • Customers don’t need to sign up for Dwolla in order to pay your business.

Cons

  • Only officially integrates with GoDaddy Bookkeeping.

Integrations: GoDaddy Bookkeeping. Dwolla can also integrate with Xero via their custom URL functionality, but unlike GoDaddy’s integration, your paying clients will need to sign up with Dwolla in order to pay you. If you’re using GoDaddy, Dwolla is great option.

Accounts Receivable Apps
A/R Apps give a business more than the capability to add a “pay now” option to an invoice. It can allow for recurring payments, automatic billing, customer portals, customer management, and so on. Some of the players you’ll find are:

There are many more services that can offer ACH capabilities, so don’t hesitate to share them in the comments below. I only mention these three because this article is really about ACH, and not about accounts receivable apps.

While on the one hand, accounts receivable apps offer a lot more functionality, they are also another service that you have to pay for. Additionally, you’ll still need to have a payment processor (or sign up for one in the case of Bill.com). This adds more complexity to your invoicing process, and since everything is integrated it’s one more thing that can act up and cause you headaches.

A con for all the apps is that you have to pay a monthly and sometimes a per-transaction fee. So, on top of having to pay for your cloud accounting software and payment processor, you’ll need to pay for it as well.

Bill.com
Bill.com offers both accounts receivable and payable services. Once a customer signs up and verifies their banking information, it’s very easy to collect from customers on a recurring and affordable basis.

Pros

  • Fees are cheap, $0.49 per transaction.
  • Established history in collecting and receiving customer and vendor payments.
  • Recurring payments is possible.

Cons

  • Customers need to sign up and verify their account with Bill.com.
  • You have to use Bill.com’s merchant services (with the exception of being able to use PayPal).

Integrations: QuickBooks Online, Xero, PayPal

Bill & Pay
Bill & Pay’s main strength is as a recurring payments invoicing system. It can integrate with any merchant account as well as PayPal, so it’s flexible in that manner.

Pros

  • Recurring payments.
  • Customers can use a “pay now” button on an invoice or a button on your website.
  • Customer is not required to create a login.

Cons

  • Need to get a merchant account.

Integrations: QuickBooks Online, Xero

Ucollect
This is a Xero add-on that manages your payment collections. How it works is that when an invoice in Xero is due, it’ll automatically request a payment from a customer (which they can pay via credit card, debit card, or ACH).

Pros

  • Integrates with a large variety of payment gateways.
  • Has many options for timing and method of collections.
  • Payment data is synced with Xero.
  • You create the invoices in Xero, so it’s not a two-invoice system like other accounts receivable apps.

Cons

  • Only works with Xero.
  • Additional cost on top of your cloud accounting software and payment gateway fees.
  • Need to get a payment gateway.

Integrations: Xero

The Future of Affordable Digital Payments
To finish up the article, I’d like to point out some of the pros and cons of ACH in general and offer my thoughts about where digital payments may be headed.

Pros

  • Inexpensive.
  • Less reversible than credit card payments.
  • A customer has 60 days to dispute a charge (unless it’s a business bank account, in which case they only have two days).

Cons

  • Slow to get paid (even though you get payment instantly, it’ll probably take at least three to five days to see the money in your bank).
  • Customers are wary of entering their bank details online.
  • For customers, it’s not as easy and secure as using a credit card.
  • When ACH payments are reversed, you cannot contest the charge through a bank (like you can with a credit card dispute) – you must contact the customer directly.
  • For international businesses dealing with US customers (which is why you’d want ACH), I don’t think I’ve read of any service that allows non-US-based businesses to use ACH.

While ACH is a good medium for inexpensively sending between $1,000 and $10,000, it’s not as useful for one-time purchases and larger sums. For one-time purchases, customers would rather enter the credit card information, as they feel more protected for refunds and don’t have to authorize the withdrawal of funds directly from their bank account. For larger sums, many merchants have a limit on the transaction amount (which I’ve seen to be $10,000 in some cases).

With the direct relationships forming between banks and accounting software, like Xero’s recent agreement with Wells Fargo, this could very well pave the way in the future for businesses to be able to both issue and receive payments directly through their cloud accounting software. Note that Forte is owned by Wells Fargo, which allows ACH processing in Zoho Books. So, maybe that functionality will be made available within Xero?

Bitcoin is theoretically a cheaper, safer, and faster way to electronically send money, but the technology is still in its infancy and needs more time and development. I won’t get into the details, but the blockchain is the foundation upon which Bitcoin is built, and banks and exchanges are actively exploring how to use the technology to improve the transmission of financial records. In the future, even if Bitcoin may not be what’s sent between accounts, it may be the blockchain that will be used to move the money around.

Perhaps this is wishful thinking, but I really do believe that the blockchain will eventually push the banks to offer more competitive options for transferring money from customers to businesses. The big reason you’re paying fees to banks is so they can be that trusting middleman between you and your paying customer.

The blockchain can now provide that trust, which leaves convenience and ease of use as what the banks can still offer. Bitcoin is built on the blockchain, which is cheap, safe (for knowledgeable users), and fast, but the currency is not in the fiat currency that customers want to use (US dollars).

So, the hope is that banks can utilize the blockchain to allow customers to easily, safely, and quickly pay in the currency of their choice – all at a lower cost than traditional methods.

Greg Lam will be presenting the sessions, Cloud Accounting Face Off and Setting Up a Paperless Accounting Flow, at Accountex 2016, Nov 15-18 in Las Vegas. The original post appeared on the Sleeter Group blog. AccountingWEB and Accountex have partnered to bring you this content as we share a belief in the furtherment of the profession through greater insights.

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