ACH vs. credit card: How each payment method work

Every business faces the same payment dilemma: choosing between ACH transfers and credit card payments while balancing processing costs, rewards, security, and efficiency. The payment method you choose shapes how customers interact with your business and impacts everything from cash flow to customer satisfaction.

This article breaks down how each payment method works, what you'll pay in fees, and which security features protect your business so you can choose the option that best suits your needs.

What is an ACH payment?

An ACH payment is an electronic funds transfer that moves money between U.S. bank accounts over the Automated Clearing House network. These transactions are known for their lower fees, making them ideal for recurring payments or high-value B2B transactions such as payroll or vendor payments.

How ACH payments work

Here's an example of the ACH payment process when you use it to pay a vendor:

1. Authorization: You, the payer, initiate the payment through your bank's online banking platform, mobile app, or other banking interface, providing the vendor's account details and authorizing an ACH credit transaction
2. Payment initiation: Your bank, now acting as the Originating Depository Financial Institution (ODFI), creates the ACH credit entry to send funds to the vendor's account
3. Batching: ACH transactions don’t process individually. Your payment is processed in batches with other ACH transactions for efficiency, reducing costs and streamlining processing.
4. Clearing through the ACH network: The batches go to the ACH network, which acts as a central hub that routes payments between financial institutions. The ACH network receives transactions from your bank, the ODFI, and forwards them to the vendor's bank, the RDFI, or Receiving Depository Financial Institution.
5. Daily processing: ACH payments move throughout the day in specific timeframes, known as settlement windows. Unlike credit card transactions, they aren't instantaneous; ACH transfers can take 1–3 business days to clear. They can also be rejected due to insufficient funds or incorrect account information.
6. Funds deposit: After clearing, the vendor's bank deposits the funds into the vendor's account. The transaction is complete.

This multi-step process may take longer than credit cards, but ACH payments offer businesses a reliable, cost-effective way to transfer funds with strong regulatory oversight.

ACH fees and security

ACH payments are remarkably affordable compared to other payment methods. You can expect to pay ACH fees of between $0.20 and $1.50 per transaction, making them a popular choice for recurring payments. In fact, the ACH network processed $33.56 billion in payments in 2024.

From a security standpoint, ACH payments offer solid protection through multiple layers of verification. Banks authenticate transactions before processing, and the ACH network itself monitors for suspicious activity patterns. The system operates on established protocols that have been refined over decades of use.

ACH fraud, protection, and compliance

Despite strong security, ACH fraud does exist. Common schemes include unauthorized debits from compromised account information or fake vendor payment requests. The good news is that ACH transactions can be reversed within specific timeframes if fraud is detected, giving you recourse options.

Compliance with ACH rules is relatively straightforward. Nacha, the organization that oversees the ACH network, sets clear guidelines for authorization requirements, transaction limits, and processing timeframes.

Most businesses find these rules easy to follow. This is especially true when working with established banking partners who handle much of the compliance overhead.

What is a credit card payment?

A credit card payment is a digital transaction that draws from a predetermined credit limit issued by a financial institution or card provider.

When you swipe, dip, or tap your card, the payment travels through major card networks such as Visa, Mastercard, American Express, or Discover. These networks act as intermediaries, connecting your bank with the merchant's bank to authorize and settle the transaction within seconds.

For businesses, credit cards bring both benefits and challenges. Customers love the convenience and flexibility, which can boost sales and customer satisfaction. The instant authorization also means merchants know immediately whether a payment will go through, reducing uncertainty about getting paid.

However, businesses face higher processing costs with credit cards compared to other payment methods. Credit card transactions also carry increased fraud risk, requiring you to stay vigilant about suspicious activity and implement appropriate security measures to protect your business and your customers' sensitive payment information.

How credit card payments work

Here's a step-by-step overview of the credit card payment process:

1. Payment authorization: A purchase sends your card details to the business’s payment gateway. This includes your card number, expiration date, and Card Verification Value (CVV).
2. Verification and approval: The payment gateway communicates with the card network and your issuing bank to confirm you have enough credit or funds for the transaction. If you do, your merchant receives an authorization code.
3. Transaction capture: After approval, the process captures the transaction, “holding” the amount in your credit line or account
4. Batch submission: As with ACH payments, the merchant groups credit card transactions into batches and submits them to the payment processor at the end of the business day
5. Settlement: The payment processor sends the batch to the card network, then routes the payment to your bank. Your bank releases the funds to the card network, which passes them to the merchant’s acquiring bank. This processing time is often instant or same-day.
6. Posting to the merchant’s account: Once the funds settle, they move into the merchant’s account. Depending on the payment processor, this can take 1–2 days.

While credit card processing involves multiple parties and fees, the speed and convenience make it a preferred payment method for both businesses and consumers.

Credit card fees and security

Credit card processing fees typically range from 1.5% to 3.5% per transaction, depending on your payment processor and card type. There may also be an additional flat fee, usually around $0.30 per transaction. Premium rewards cards usually carry higher fees, while basic credit cards tend to cost less.

The security benefits make these transaction fees worthwhile for most businesses. Credit cards come with built-in chargeback protection, allowing you to dispute fraudulent or problematic transactions directly with your bank. Advanced fraud detection systems monitor spending patterns and flag suspicious activity in real time.

Your business will need to maintain PCI DSS compliance when accepting credit cards, which involves following specific security standards for handling cardholder data. Most payment processors help simplify this process by offering secure, compliant payment solutions that handle the technical requirements for you.

ACH vs. credit card: Key differences

Here's a side-by-side comparison of ACH payments vs. credit cards for quick reference:

Pros and cons of credit card vs. ACH

ACH transfers and credit cards each offer distinct advantages and drawbacks that can significantly impact your operations and bottom line:

Pros and cons of ACH

ACH transfers work well for businesses that prioritize low costs and handle regular, predictable payments.

Pros:

• Lower processing fees: ACH transactions typically cost a fraction of credit card fees, making them ideal for high-volume or large-dollar transactions
• Perfect for recurring payments: Automatic monthly subscriptions and regular billing cycles work seamlessly with ACH processing
• Reduced chargeback risk: Bank-to-bank transfers face fewer disputes compared to credit card transactions
• Higher transaction limits: ACH payments can handle larger amounts without the restrictions often imposed on credit cards

Cons:

• Slower processing times: ACH transfers can take 1–3 business days to complete, unlike instant credit card approvals
• Best for domestic transactions: ACH networks primarily serve U.S. accounts, restricting international payment options
• Higher failure rates: Insufficient funds or closed accounts can cause ACH payments to bounce more frequently
• Less consumer protection: You have fewer dispute rights compared to credit card purchase protections

Pros and cons of credit cards

Credit cards excel at providing immediate payment confirmation and flexibility for both businesses and customers.

Pros:

• Instant processing: Credit card transactions go through within seconds, providing immediate payment confirmation and faster cash flow
• Global acceptance: Credit cards work internationally, allowing you to serve customers worldwide without payment barriers
• Customer rewards programs: You may prefer using cards that earn points, miles, or cashback on your purchases
• Strong fraud protection: Credit cards offer extensive security features and dispute resolution processes for both merchants and customers
• Higher approval rates: Credit transactions succeed more often than ACH payments due to available credit limits

Cons:

• Higher processing fees: Credit card fees typically range from 1.5–3.5% per transaction, significantly affecting profit margins
• Chargeback risk: Customers can dispute charges up to several months after purchase, potentially causing revenue loss
• Complex fee structures: Processing costs vary based on card type, transaction method, and merchant category codes
• PCI compliance requirements: Accepting credit cards requires adherence to strict security standards and regular compliance audits

Credit cards work best for businesses that value speed, flexibility, and the ability to serve customers across different markets and payment preferences.

Which payment method should you accept?

The right payment method depends on your business model, customer base, and financial priorities. Both ACH and credit cards serve different purposes and excel in specific situations. Here's a short checklist of considerations to help you decide:

• Transaction size: Large payments favor ACH due to lower fees, while credit cards work well for smaller purchases where percentage-based fees are manageable
• Frequency: Regular, predictable payments such as subscriptions benefit from ACH automation, whereas sporadic transactions may suit credit card flexibility better
• Customer preferences: Some customers prefer the rewards and dispute protections of credit cards, while others appreciate the direct bank transfer simplicity of ACH
• Security needs: Both methods offer strong security, but ACH reduces chargeback risks since transactions are harder to reverse compared to credit card disputes
• Cash flow impact: Credit cards provide immediate funds but come with higher processing costs, while ACH takes longer to settle but preserves more revenue through lower fees

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Business use cases for ACH and credit card payments

When to use ACH payments

• Payroll processing: ACH payments are a reliable and cost-effective choice for recurring employee payments. This method is especially useful for direct deposits.
• Vendor payments: For supplier transactions, ACH minimizes fees and efficiently handles larger electronic payments
• Subscriptions and memberships: Automating recurring billing through ACH simplifies processes and keeps fees manageable
• Utility bills: ACH payments ensure timely, hassle-free payments for regular business expenses
• Loan payments: Businesses that manage loans benefit from the consistency and affordability of ACH transfers

When to use credit card payments

• Travel costs: Booking flights, hotels, or car rentals is easier and more secure with credit cards
• Emergency expenses: Credit cards provide instant purchasing power for unexpected costs like equipment repairs
• Client entertainment: Use credit cards for meals, events, or gifts, earning rewards in the process
• Online transactions: Credit cards offer fraud protection and chargeback options, reassuring customers during e-commerce purchases
• Daily expenses: Quickly cover office supplies or small services without disrupting your operations

How Ramp helps you automate ACH payments

Managing accounts payable for a small business can get overwhelming fast. While ACH debit transactions can automate vendor payments, many providers fail to integrate them seamlessly into your overall AP workflow.

‍Ramp’s modern finance operations platform combines corporate cards with accounts payable automation software, providing:

• Smart approvals: Customize approval flows and set alerts for errors or overbilling. Ramp ensures accuracy at every step.
• Unified payment platform: Manage all your payment methods, including ACH, credit cards, and more, in one place, with complete visibility
• Seamless integration: Sync with your ERP for real-time updates on bills, vendor information, and purchase orders
• Automated recurring payments: Let Ramp handle recurring bills, batch payments, and vendor onboarding without manual effort

Make managing ACH payments easier. Start automating your AP with Ramp.

This post includes general information about ACH payments. For help with ACH functionality specific to Ramp, visit Ramp Support for more details.