What is an ACH Payment? + Everything Else You Need to Know

An ACH payment is a great way to quickly and securely send direct payments from your bank account, but it’s important to understand how it works and what fees you may incur. In this article, we’ll provide everything you need to know about ACH payments, including how they work, the fees associated with them, and more. Keep reading to learn more.

What is an ACH Payment?

An ACH payment is a type of electronic transfer of money from one bank account to another. These payments are also known as echecks, and it’s an efficient and secure way to send payments directly from your bank account without the need for physical cash or checks.

With ACH payments, money is transferred immediately, often within the same day. Using ACH payments can also save you fees that are incurred when making traditional payments with cash or checks.

Here’s a quick word from Merchant Maverick that discusses the 7 best ACH processors for small businesses that can save you money.

How Do Automated Clearing House Network Payments Work?

ACH payments - payroll services

The Automated Clearing House (ACH) network is an integral part of the U.S. financial system, streamlining electronic funds transfers between different banks and financial institutions. Here’s a concise breakdown of the process:

  • Introduction to ACH Network:
    • The ACH network facilitates electronic funds transfers (EFTs) between banks and financial institutions, promoting a seamless flow of money.
  • Uses of ACH Payments:
    • Bill Payments: Many people use ACH payments to settle their bills without the need for checks or cash.
    • Payroll Services: Employers often rely on ACH payments to disburse salaries to their employees.
    • Person-to-Person Payments: Individuals can use the system to send money to friends or family, similar to bank transfers but often more efficiently.
  • Initiation of ACH Payment:
    • A sender begins the process by authorizing an electronic transfer of funds from their bank account to the intended recipient’s bank account.
  • Role of Banks:
    • Originating Bank (ODFI): The sender’s bank, or ODFI, plays a pivotal role by sending the payment through the ACH network.
    • Receiving Bank (RDFI): The RDFI, or the recipient’s bank, receives the payment from the ACH network and credits it to the recipient’s account.
  • Processing Intervals:
    • ACH payments are not processed in real-time. They’re usually batched and processed either once or twice daily.
    • Due to this batching system, there might be a short delay from the moment the payment is initiated to when the recipient’s account gets credited.
  • Security Considerations:
    • The ACH network is fortified with robust security measures, making these payments secure.
    • A network comprising banks and financial institutions ensures that strict security protocols are always maintained.
  • Cost and Efficiency:
    • ACH payments usually have a cost advantage over wire transfers, making them a preferred choice for many.
    • Their systematic and batched processing method ensures efficient fund transfers between different accounts.

Understanding the nuances of ACH payments can provide both businesses and individuals with a clear advantage in managing electronic fund transfers effectively and securely.

ach payment

Types of ACH Payments

ACH payments, or Automated Clearing House payments, are popular methods of digital transactions that occur between two parties.

An ACH direct payment can be divided into two main categories: ACH Credits and ACH Debits.

ACH Credits

An ACH Credit is an electronic funds transfer from one account to another in which the sender’s account is the originator and the recipient’s account is the beneficiary. This type of payment is used for various purposes such as direct deposit payroll, debt collection, tuition payments, and loan repayments.

The benefit of this type of transaction is that it can be completed quickly and securely with minimal paperwork.

ACH Debits

This type of transfer occurs when funds are withdrawn from the originator’s bank account and deposited into the beneficiary’s bank account. This is often used for recurring bills such as utility payments or mortgage payments. The advantage of an ACH Debit compared to other forms of payment is that it can be automated, so there is no need to manually process each transaction.

How to Make an ACH Payment

Making an ACH payment is not only simple but also secure. It offers users a dependable avenue to send money electronically. Here’s a more in-depth breakdown of the steps to execute an ACH payment:

  1. Gather Information:
    • Purpose: Before initiating any payment, it’s vital to collect all the essential details. Without the correct information, your transaction may get delayed or rejected.
    • Details Needed: Ensure you have the recipient’s bank routing number and account number. These are the foundational identifiers for ACH transactions.
    • Sources: The recipient can often provide this information directly, or it may be found on a paper check or within online banking portals.
  2. Set Up Payment:
    • Platform Selection: Decide on the platform where you’d like to execute the ACH payment. This can range from your bank’s online portal, a dedicated mobile application, or even third-party payment platforms that support ACH transfers.
    • Input Details: Navigate to the payments or transfers section and enter the previously gathered information (routing number and account number) accurately.
  3. Choose Frequency:
    • One-Time or Recurring: You can decide if you want to make a one-off payment or set it up as a recurring transaction. Recurring payments are ideal for bills or subscriptions where the amount remains constant over periods.
    • Scheduling: If choosing recurring, specify the frequency (e.g., weekly, monthly) and select the start and end dates if applicable.
  4. Confirm and Send:
    • Review: It’s crucial to double-check all the entered details to avoid any errors. Ensure that the amount, recipient details, and frequency (if applicable) are correct.
    • Authorization: Once you’re certain everything looks accurate, proceed to confirm the transaction. This might involve inputting a password, answering a security question, or even using biometric verification depending on your platform.
    • Transaction Status: After sending, you’ll typically receive a confirmation message or notification, indicating the transaction was successfully initiated. Ensure to keep this as a record.

Once you do all that, your payment is on its way!

ACH Payment Successful

Here is an easy-reference table that summarizes the steps for making ACH payments:

Step No.Step DescriptionDetails and Considerations
1Gather InformationPurpose of the payment is established. Collect recipient's bank routing and account numbers. Information can be obtained from recipient, paper checks, or online banking.
2Set Up PaymentChoose a platform: online banking, mobile app, or third-party platform. Navigate to the relevant payment section and input the recipient's details.
3Choose FrequencyDecide between one-time or recurring payment. If recurring, specify frequency and duration (start and end dates if necessary).
4Confirm and SendReview all transaction details for accuracy. Authorize the payment through security measures (password, biometrics, etc.). Wait for a confirmation message and keep it for records.

How Long Do ACH Payments Take?

ACH payments typically take 1 to 3 business days to clear, but some banks can process them in as little as one day. Funds are usually available within two days after the payment is initiated, but this depends on the financial institution. Once an ACH payment has been processed, a confirmation will be sent to the sender’s bank account.

ACH Payment Examples

There are several types of ACH payments, each with its own purpose and benefits. These include recurring payments, direct deposits, and transfers. While they may appear to be the same on the surface, there are differences between them that make certain options better suited for various situations.

Recurring Payments

ACH payments - recurring payments/online bill paying

Recurring payments allow customers to set automatic disbursements from their accounts at specific times throughout the month. This type of payment is especially helpful for those who need consistent payments or deductions from their accounts such as rent, utilities, or subscriptions. This helps make sure that those expenses never get forgotten or neglected.

Direct Deposits

Direct deposits provide an easy way for employers to pay workers via electronic transfers instead of setting up costly paper checks each month. Employees often receive their wages faster with direct deposits than if they were paid via other methods like checks in the mail. It can also save employers time and money since they don’t have to manually print out checks every pay cycle.


ACH payments -transfers

Transfers refer to when money is moved from one account to another on an internal basis with no actual money changing hands. This is commonly used among larger businesses that have multiple financial institutions and need a way to move funds between them without having to perform large transactions every time. Internal transfers allow for easy management of financial assets without any extra costs involved in making transfers happen outside of the banks’ networks.

Pros of ACH Transactions

An ACH transaction offers benefits to both senders and receivers. Here are some of the advantages of using ACH payments:

  • Secure: ACH payments are protected by sophisticated encryption methods and two-factor authentication, making them one of the most secure payment options available.
  • Fast: Transactions are typically completed within one or two days, making this a fast option for digital payments.
  • Low Fees: ACH transfers often have lower fees than other types of payments, making them an attractive option for businesses and individuals alike.
  • Easily Automated: Unlike other forms of payment, such as credit cards or paper checks, ACH transfers can be easily automated so users don’t need to manually process each transaction.
  • Cost-Effective: Since there is no need to print paper checks or process credit card payments, ACH transfers are generally more cost-effective than these alternatives.
  • Environmentally Friendly: ACH payments reduce the need for paper-based transactions, making them an eco-friendly option.
  • Widespread Acceptance: ACH transactions are widely accepted by banks and financial institutions, ensuring ease of use for both parties involved.
  • Enhanced Record-Keeping: ACH transactions provide detailed records, making it easier for businesses and individuals to track their finances and reconcile accounts.
  • Reduction in Error Handling: Automated ACH payments minimize errors associated with manual data entry, reducing the likelihood of mistakes in financial transactions.

Cons of ACH Bank Account Transactions

Despite the many benefits of ACH payments, there are also some drawbacks to consider. Here are a few of the potential downsides to using this payment system:

  • Time Delays: As with any form of payment, transactions may be subject to delays due to errors or fraud prevention measures.
  • Insufficient Funds: If the originating account does not have enough funds to cover the transfer, the transaction could be rejected and incur additional fees.
  • Risk of Fraud: Since the information contained in ACH transfers is often less securely protected than other payment methods, users should be aware of potential risks associated with fraudulent activity.
  • Limited International Scope: ACH transactions are primarily limited to domestic transfers within certain countries, making them less suitable for international transactions.
  • Potential for Overdrafts: If not monitored properly, automated ACH payments could lead to overdrafts if funds are insufficient at the time of the transaction.
  • Lack of Reward Points: Unlike credit card transactions, ACH transfers do not offer reward points or cashback incentives.
  • Difficulties in Disputing Transactions: Resolving disputes or stopping payments can be more challenging and time-consuming with ACH transactions compared to credit cards or other payment methods.

ACH Payments Vs. EFT Payments

ACH payments and electronic funds transfers (EFTs) are both electronic payment methods used to transfer funds from one bank account to another. The key difference between the two is that ACH payments are initiated by the sender, while EFTs are initiated by the receiver. Both types of payment involve a verification process and require accurate information pertaining to the recipient’s financial institution in order to complete the transfer successfully.

Alternatives to Send Money Online

Small business owners should be aware that Square accepts ACH payments, but for those looking for alternatives to ACH payments to send money online, there are a few options available. Here are the four main choices:

Credit and Debit Cards

alternatives to ACH payments - credit and debit cards

Credit and debit cards offer quick, convenient ways to transfer money online. With no need to open a separate bank account or provide personal information, using cash-back business credit cards, business credit cards with rewards, prepaid business credit cards, or debit cards is often the easiest way to go. However, users should be aware that credit card processing fees can be quite high.

Bank-to-bank Transfers

Bank-to-bank transfers allow users to quickly and securely move funds from one bank account to another with minimal fees. This method is usually fast and easy but may involve waiting periods depending on the banks involved.

Wire Transfers

Wire transfers are secure, instant methods of transferring money in or out of a bank account. They tend to have higher fees than other options but do provide assurance that the money will reach its destination.

Payment Apps

Using mobile payment apps like Paypal and PayPal alternatives like Venmo, Google Pay for business, and Apple Pay are increasingly popular methods of sending money electronically without any financial institutions involved. Divvy bill pay is also another option. These apps are often faster and more affordable than traditional banking options and can even be used for international transactions with low fees.

Final Words

ACH payment

In conclusion, ACH payments are an efficient way to transfer funds between two bank accounts. They are typically faster than paper checks, but slower than EFTs. ACH payments require accurate information about the recipient’s financial institution to be completed successfully and can take 1 to 3 business days for processing.

Knowing the ins and outs of ACH payments is essential for those wishing to use this payment method for their financial transactions. Be sure to track your ACH payments using invoicing software, and money management apps, or use other services that provide visibility and control over the entire payment process.

ACH Payment FAQs

How much do ACH payments cost to process?

It typically costs less to process ACH payments than EFTs, since the sender of the payment is responsible for initiating the transaction.

Fees vary depending on the banks involved in the transfer and which services are used, but most ACH payments cost between $0.20 – $1.50 per transfer.

Why are some ACH payments rejected?

ACH payments may be rejected if the information provided is incorrect or insufficient. Other common reasons for ACH payment rejections include insufficient funds, duplicate payments, and frozen accounts. Transactions that are deemed suspicious by a bank’s anti-fraud measures may also be declined.

Are there any penalty fees with ACH payments?

Yes, some ACH payments may incur penalty fees. Some banks may charge a fee for returned payments or late payments, and some payment processors may also impose a fee for failed transactions.

It’s important to consult with your bank or processor before initiating an ACH payment to understand what potential penalties could be incurred. Research payroll compliance tips to understand ACH payments and ensure their accuracy.

Do I have to pay back the ACH credit?

Whether or not you have to pay back an ACH credit depends on the specific circumstances of the transaction.

If the ACH credit was the result of a mistake or error, such as a duplicate payment, then you would likely need to return the funds to the sender.

This could be done by initiating an ACH debit, which is a reversal of the original credit. If the ACH credit was the result of an intentional payment, such as a direct deposit of payroll, then the credit would be considered a legitimate transaction and the funds would be considered yours to keep.

Can your bank stop ACH payments?

Yes, a bank can stop ACH payments, but the process varies depending on the specific circumstances.

If you are the recipient of an ACH credit and you believe that the payment is unauthorized or ACH fraud, you can contact your bank and request that they stop the payment.

Your bank will then investigate the transaction and, if necessary, return the funds to the sender.

If you are the sender of an ACH debit and you need to cancel a payment, you can contact your bank and request that they stop the payment.

Depending on the timing of the request, the bank may be able to cancel the payment before it is processed.

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Small Business Editor Nicole Ocasio is a staff writer for Small Business Trends and has been with the team for one year. She focuses predominantly on business-related topics, with an emphasis on industry-specific insights and how-to guides.