Payments: The Cost of “Convenience”


No matter how diverse or different one business is from another, we all have one thing in common: We must collect payment for our services. Some businesses are fortunate enough to have clients pay in cash, but most must collect payments with a client’s credit card or bank account. There are significant benefits pulling money directly from a client’s account, such as having a recurring stream of income and ensuring the payments come in on time. However, these benefits come at a tangible cost — the bill from your merchant service provider.

Consider for a moment that in the abstract there is no difference from a client paying cash or collecting the payment over an electronic medium. Both methods are conveying a set amount of currency from your client’s possession into your possession. However, the mechanical process to move the money has a value, and so does the client’s experience in paying their bills. As a client, it is easier to have your money come from your account when it’s due, as opposed to having to go to an ATM to get cash and bring it in. Likewise, it is easier for a business to have automated systems collecting their membership fees instead of having to physically collect cash, log the cash to user accounts and then deposit the cash. Therefore, the distinction between these methods is in the convenience to the business and their client, and this convenience comes at a cost.

However, the cost of any given transaction is not the same. The distinction between processors and styles of transactions can alter the cost of moving money from as much as 3 percent of the amount of the transaction to as little as a flat fixed fee that is less than a dollar. For credit cards, the fees paid are based off a complicated series of fees called ‘interchange,’ which effectively means variable percentage-based fees. All fees that calculate on a percentage of the transaction are expensive when collecting membership dues, so paying a fixed fee is ideal. Generally, credit cards have variable percentage-based fees, where ACH transactions have fixed fees. Therefore, ACH transactions from a client’s bank account are the most economic automated solution for collecting membership dues.

After considering the above information, the natural question arises: Why aren’t all transactions done via ACH? Because ACH transactions do not authorize in real time and can take two to five days to settle, where credit card transactions authorize immediately and settle within 48 to 72 hours. Therefore, the theme of paying for convenience arises again. Here though, you are paying to have access to your funds quicker and to know immediately if the transaction will clear. Therefore, establishing a balance between these two divergent methods that reduces fees while also providing adequate cash flow becomes the solution.

While every business must collect payments for their services, each individual business must determine what form of payment they want to take in proportion to the other available options. It is now clear that while cash is ideal, it’s inconvenient; while credit cards are convenient, they are expensive; and while ACH is convenient and inexpensive, it has a long settlement period. Therefore, a business should consciously decide how much of each method to use and effectuate that change within their organization, so they can have their convenience and cash flow, while also saving money.


By Kurt Schneider, the compliance manager at RhinoFit. For more information, call 866.858.0304 or email