All About ACH Payments

The phrase ACH payments has become a frequent phrase in business language. You likely know what an ACH Payment is but perhaps don’t know what A-C-H stands for. 

We can thank our United States Air Force for the concept of using an Automated Clearing House to expedite the movement of funds between two parties. In the late 1960s, the U.S. Government used the ACH concept to expedite paychecks to Air Force employees. It worked out so well that it led to the expansion to pay other employees and soon became the payroll standard for all government employees and their paychecks. By 1978 electronic funds transfers or EFT’s as they were known were widely available. In 2001, all banks insured by the FDIC were able to join the ACH network. This was important because in the same year, Internet-based payments went into effect and that would go on to become a big part of ACH payments. 

ACH Network

The ACH Network is the national automated clearing house for electronic funds transfers. The network processes transactions for consumers, businesses, and federal, state, and local governments. ACH transfers include a direct deposit for payroll, Social Security and other benefit payments, tax refunds, and merchant payments. ACH direct debit transfers are initiated by consumer payments on everything from monthly insurance premiums to mortgage loans, car payments, utility payments, and other kinds of bills. In fact, some $62 trillion dollars are moved each year through ACH transactions. The Electronic Payments Network is part of the ACH network. There was an 11% rise in ACH transactions during the COVID-19 pandemic. People are embracing ACH payments even more as consumers seek more contactless payment options.

What is an ACH payment?

An ACH payment is an electronic bank-to-bank payment. The process of moving money between merchants and their customers is very similar to the process used through payment card networks such as Visa or Mastercard. ACH payments are commonly referred to as an ACH transfer, ACH Payment, or ACH transaction. All have the same meaning. The ACH network is a US payments network only. 

There are two main categories of ACH payments:

  • Direct Deposits
  • Direct Payments

Direct Deposit refers to all kinds of deposit payments from businesses or government who places money into the receiver’s bank account for payroll, employee expense reimbursement, government benefits, tax refunds, and annuities and interest payments.

Direct Payment is used by a Payor (either a company or individual) to make payments to others. 

Process Time for ACH payments

While in most cases, ACH transactions are completed within 24 hours, it can take more than 3 working days for funds to appear in your bank account. The time of day you submit an ACH transaction to your bank can be very important. Anything after 3:00 pm may not get started until the next banking day.

Benefits of ACH Payments

Using ACH payments brings significant benefits for companies who have recurring monthly fees that are due from their client. Monthly ACH debits of customer accounts can automate the payment process while significantly reducing delinquent payments. 

  • Low cost – Since an ACH payment is not routed through credit card processing networks, ACH transactions are a cheaper method for electronically transferring funds.
  • High retention – Credit and debit cards expire. With an ACH transaction, a bank account is the source of funds and unless it has insufficient funds, the monthly transactions are completely automated, and users seldom cancel monthly payments.
  • Open to anyone – Anyone with a US bank account is able to pay via ACH. This includes both businesses and consumers.

Is there a Difference in Wire transfer vs ACH transfer

Yes! Speed and price are the big factors. The wire network processes transactions in real-time, so wire transfers are usually delivered within minutes. ACH payments can take several days to settle. While wire transfers have fees that average $25 per transaction, an ACH transfer will cost about .25 cents. Recipients of ACH funds have no fee. Incoming wire transfer fees can cost the recipient $5 to $10 per incoming wire transfer. Wire transfers are best for large or time-sensitive transfers, either within the US or abroad. If time isn’t an issue, an ACH payment offers a significant advantage over a wire transfer, because of its lower cost.

Ready to Add ACH Services

You can set up ACH processing through Chosen Payments. You’ll need two primary components to accept ACH payments. Chosen Payments specializes in setting up ACH accounts. Ask your Account Executive for more details, visit our website at www.chosenpayments.com or call us at 855-4CHOSEN. You’ll be making receiving ACH payments in no time.

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