All About ACH Payments

Have you or your customers been using physical, paper checks to make payments? Paper checks can definitely be a hassle. For instance, customers have to remember to pay their bills every month, and recipient companies have to go to the bank to deposit the checks regularly. Luckily, you can now switch to a more convenient payment method known as ACH payments or eChecks. If you want to learn more about ACH payments and how they work, please read on!

What are ACH payments?

Automated Clearing House (ACH) is an electronic network that lets individuals and businesses make direct transfers from one bank account to another.

This payment method keeps getting more and more popular, mostly due to its cost-effectiveness, safety, and convenience. Besides, this method has been used for several years now, and many corporations and people can attest that it’s one of the best payment solutions available. In addition, recurring payments are possible with ACH, which makes it a great way to automate your monthly bills and salary payments.

The National Automated Clearing House Association (Nacha) manages the administration, development, and governance of the ACH Network in the United States.

What are the various types of ACH payments?

The ACH network currently processes two forms of transactions – direct payments and direct deposits.

ACH Direct Deposits

ACH Direct Deposits (also known as ACH credit) are electronic payments made from a government entity or business to a consumer. This form of payment accommodates payroll, annuity payments, government benefits, employer-reimbursed expenses, interest payments, and tax refunds. With direct deposits, the money arrives in the customer’s bank account, but if you want to make a payment, then you will need to make an ACH direct payment.

ACH Direct Payments

Companies, organizations, and individuals use ACH Direct Payments (also known as ACH debit) to send money. For instance, if you intend to pay a utility bill online via your bank account, you’ll be making an ACH direct payment. The person or entity sending the money sees a debit transaction on their bank account, showing to whom the funds were sent and the amount.

How does it work?

The process for making ACH payments is pretty straightforward. First, the transaction originator needs to set up an account with an authorized payment processor, such as your current financial service provider. Once the account is active, and assuming you have sufficient funds, you can create a payment request by authorizing a debit action on your account. This request includes the bank account number and routing number of the payee.

Then, the request entry for the transaction will be queued by the ACH operator or bank, awaiting processing. The ACH will work on payment requests and forward results to the beneficiary’s bank. The funds are typically credited to the beneficiary’s account within two business days, and immediately after this is done, the account will record a debit.

Why should you use ACH payments?

If you’ve never used ACH payments, you may still be wondering why you should use this payment method instead of using paper checks. ACH payments offer many benefits like:

Low processing fees

If your company has been using debit and credit card payments, you already know the processing fees you incur for each transaction. ACH payments cost less than credit and debit cards. This is because the fees are calculated as a percentage of each transaction. On the other hand, checks may be the most affordable, but the recipient will still need to send someone to deposit the check at the bank, hence incurring transport and labor costs and time wastage. All factors considered, ACH payments are the least expensive payment method.

Better security

To date, conventional paper checks are associated with the highest risks, followed by wire transfers. For instance, if a person decides to write a check and sends it via mail, the check can be defrauded or compromised in numerous ways. The different entities that handle the check’s transportation can choose to tamper with the check or forge it. Also, it might get lost at the post office or on transit to the merchant’s office. These issues aren’t experienced when using ACH payments because it’s an electronic method that doesn’t require human intermediaries.


ACH payments offer convenience to both the money sender and receiver because the payments are processed electronically. In a business setting, customers don’t have to carry checkbooks around or send them via mail. Even more, ACH allows clients to set up recurring billing, which don’t require frequent trips to the bank. This will save you time, postage, ink, labor, and transportation.

Do ACH transfers beat wire transfers?

If you’re accustomed to wire transfers, you’re probably curious if you should switch to ACH transfers. When it comes to speed, wire transfers stand out, as the transactions are done in real-time – often in a few minutes or hours. On the other hand, ACH transactions can take up to three days, depending on how busy the system is.

Whereas wire transfers are processed in real-time, ACH transfers are handled in batches three times per day.

The costs for both money transfer methods vary, but wire transfers are generally more costly. This is because the fee is paid per-transaction, and the charges are higher for international money transfers. To make matters worse, the recipient might be charged a fee to receive the funds even if you had paid a fee while sending. ACH payments are cheaper because the costs aren’t done per-transaction.

So, if you have a time-sensitive transaction, you should go for a wire transfer, but you will pay more for the speed, whether the money is sent abroad or within your country. If you’re looking for lower transaction fees and increased safety, you should choose ACH transfers. Your choice therefore should depend on your urgency and budget.

When should you use ACH payments?

Any entity or individual can use either of the types of ACH payments, as long as they have an eligible account and their financial provider can facilitate the transaction.

Organizations can use direct deposits to pay for things such as:

  • rewards
  • annuities
  • dividends
  • interest
  • child support
  • tax refunds
  • pension
  • social security benefits
  • employee expenses reimbursements

In addition, individuals and businesses can make ACH direct payments for:

  • investments
  • utilities
  • donations
  • tuition
  • subscriptions
  • loan repayment
  • paying for supplies
  • sending money to family or friends

Clearly, ACH transfers are an easy and convenient way to send or receive money in today’s modern world. And while you can be confident that the system will complete the transaction in a few days, it’s vital to familiarize yourself with your local bank’s policies for direct payments and deposits. Also, make sure you use a legitimate financial institution to do your transfer to avoid disappointments. Best of luck with your transfers!

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Kenneth James

As a money transfer expert at Transferly, Kenneth strives to help people navigate the world of money transfer companies and bad exchange rates. He’s seen everything this industry has to offer, and he is more than happy to share that knowledge with our readers.

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