What is ACH Payment Processing?
ACH (Automated Clearing House) payment processing is a way for nonprofits to accept donations from supporters who wish to give via direct debit.
The automated clearing house processes "batches" of debit card transactions and deposits the funds into the nonprofit's account within a few days.
ACH payment processing is also known as direct debit payment processing and is an alternative to donations made via credit card.
Why Should my Nonprofit Accept ACH Payments?
ACH payment processing is yet another way for donors to give to your organization.
Donors who don’t have credit cards might want to use your online donation page to give to your cause. If you offer a direct debit option for these donors, you give them the ability to contribute quickly, easily, and securely.
Giving your supporters the flexibility to donate how they want will encourage those donors to give to your organization in the future.
ACH Payment Processing: Terms You Need to Know
ABA Routing Number
The American Banker’s Association (ABA) routing number is the 9-digit number on the bottom of checks. This number identifies which bank the check is from.
Authorization Code
An authorization code is the response code from the issuing bank returned to the nonprofit at the time of authorization.
Authorization Fee
This is also known as a transaction fee. It is the amount that is charged to a merchant account each time the payment processor communicates with the authorizing network.
Merchant Account
If you’re already accepting credit card donations, your merchant services provider may be able to help with direct debit donations as well (hint: iATS Payments by Deluxe® offers both!).
Difference Between Credit Card Payments vs. ACH Payments
ACH Payments
ACH payments are donations that are directly debited from a donor’s bank account. An easy way to think about direct debit payments is to consider them electronic checks.
Donors can use ACH payment processing to donate via their checking or savings accounts, and once the money is in your nonprofit’s account, you don’t have to worry about any chargeback fees or bounced checks.
Direct debit payment processing is less expensive than credit card processing. Instead of taking a fixed rate plus a percentage of each transaction (like credit card processing does), ACH only takes a flat fee. The flat fees for both are usually around the same amount.
For example, a common credit card fee might be 2.5% + $.30. An ACH fee for the same amount might only be $.30.
Over time, the savings in fees can save nonprofits hundreds if not thousands of dollars a year.
Credit Card Payments
Credit card payments are more common than ACH payments. Nearly everyone has a credit card, and most people have used their cards to shop or donate online.
Credit cards have familiarity in their favor, but they’re also easier to use from a donor standpoint.
It’s simple for a donor to pull out his or her credit cards and enter the numbers on a donation form. With direct debit payments, the donor must input the routing number and their bank account number in order to make a donation.
However, the fees associated with credit cards can be high depending on the credit card type.
It’s wise for nonprofits to offer both credit card and ACH payment options to donors for ease and convenience.
Advantages of ACH Payment Processing
Increasing in Popularity
In the recent past, the Automated Clearing House has processed nearly $10 billion in direct debit payments in just one quarter. This number is only set to rise in the coming months and years. Your nonprofit can take advantage of this trend by offering ACH payments to your donors!
Lower Transaction Fees
With ACH direct debit payments, there is only a flat fee associated with each transaction. This is different than credit card payments that normally charge a percentage along with a flat fee per transaction. The difference could mean extra hundreds or thousands of dollars!
Donors change their credit cards more frequently than they change banks. Because of this, your nonprofit receives fewer bounced donations and can process donations, online purchases, membership fees, and event tickets more quickly.
Recurring Donations
With ACH payment processing, donors can set up recurring donations that are directly debited from their bank accounts. Allowing donors to set up recurring donations automatically boosts your donor retention rates. As long as a donor doesn’t cancel the recurring debit, your nonprofit has retained that donor.
Security
Many people might be hesitant about submitting their bank account number online, but the process is actually quite secure. ACH payment processing uses encryption to essentially jumble the bank account numbers, keeping the info safe from hackers.
Reach Donors Without Credit Cards
Not every single donor carries a credit card. And while some of these donors will simply send a check to your nonprofit, you can give them the opportunity to give easily online by offering them an ACH payment processing option.
Drawbacks of ACH Payment Processing
Donor Hesitancy
Even though many donors will give out their credit card numbers online to make purchases and donations, many are wary about using their bank account number to give online.
What donors don’t know is that ACH payment processing is just as secure if not more secure than credit card payment processing (and it’s infinitely more safe than sending a physical check in the mail!).
Intimidating Process
Most people are familiar with putting their credit card numbers on an online form. Few people know their bank account numbers off the top of their head, and even fewer know what their bank’s routing number is.
A simple way to ease donors into the process of using ACH direct debit is to show them how! You can include an image of a sample check on your donation form that shows donors where the bank account and routing numbers are.
Lack of Real-Time Transparency
It can take anywhere between 3 and 45 days to return or decline a transaction if the donor inputs the incorrect information or if there are insufficient funds in the account. This creates a lag in transparency for nonprofits.
Unfortunately, there isn’t really a solution for this particular problem. It’s best for nonprofits to act as if all ACH donations are in a “pending” stage until the funds are deposited into the account.
Educating Donors About ACH Payment Processing
Why Educate Donors About ACH Payment Processing?
Donors aren’t likely to use an ACH direct debit process unless they are assured of its security and know how to use it.
If your nonprofit doesn’t tell donors about this easy-to-use donation method, they’re probably going to use a credit card. And while this is still an excellent way to receive donations, your nonprofit can save money in fees if you can convince donors to use ACH payment processing.
How to Educate Donors About ACH Payment Processing?
You can let donors know about the basics of direct debit right on your donation form. You can place an image of a check and show where the routing and bank account numbers are that donors will need to send a donation to your nonprofit.
You can also send out newsletters and emails letting donors know that you offer another convenient online donation method.
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