What Are The Types of ACH Payments?

ACH is the driving force behind most bank-to-bank money transfers, including payroll deposits, invoice payments, and more. What types of ACH transactions are available, and how do they work?

WRITTEN & RESEARCHED BY
Chris Motola
Expert Contributor

Last updated onUpdated November 30, 2023

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Key Takeaways

ACH transactions are processed in batches and involve two operators, The Clearing House and The Federal Reserve, to transfer funds between accounts, typically finalizing within one business day for credits and the same day for debits.
ACH payments offer lower fees, faster processing than checks, no bank limits, increased security, and are ideal for recurring payments, making them suitable for businesses with regular, predictable transactions.

Automated Clearing House (ACH) payments power most of the bank-to-bank transfers in the United States. ACH is so common that many of us take it for granted, not realizing that the system is used to finalize credit card payments, for direct deposits of paychecks, and in check cashing. Below, we’ll demystify the types of ACH payments and pull back the curtain a bit on how ACH works.

Table of Contents

ACH Transaction Structure
Types Of ACH Transactions
Same-Day ACH
ACH Payment Codes
ACH Payments VS eChecks VS ETFs
The Final Word On ACH Transaction Types

ACH Transaction Structure

ACH transactions allow money to be sent from or received by bank and credit union accounts. These transactions are batched and sent by the sender’s institution to a middle entity called an ACH operator that sorts and routes the transaction to the receiver’s financial institution. The receiving account is then credited or debited. Batches are sent four times each business day.

There are two ACH operators:

The Clearing House: A payments company owned collectively by some of the largest banking institutions in America, including JPMorgan Chase, Bank of America, Wells Fargo, and US Bank.
The Federal Reserve: The federally chartered, centralized banking system of the United States. It’s mandated with maximizing employment and stabilizing prices, as well as regulating banks.

ACH payments can be settled when the Federal Reserve’s settlement system is open. The system is closed on weekends, federal holidays, and between the hours of 6:30 p.m. and 7:30 a.m. ET.

Types Of ACH Transactions

ACH transactions can be broken down into two main categories: ACH credits and ACH debits.

ACH Credits

Also known as direct deposits, ACH credits account for a little less than half of all ACH transactions and typically settle in one banking day.

An ACH credit takes money from one account and “pushes” or deposits it into another. A typical ACH credit is a direct payroll deposit from your employer, a tax refund from the government, or a similar type of mass payout. Customers could use ACH credit transactions to authorize a one-time payment of an invoice, too. ACH credits allow customers to decide how much and when to pay you.

For example, a business with W-2 employees would send its payout request to its bank, which will credit the employees’ accounts at a specified time. The bank would then send the request, along with all information about all the relevant accounts, to the ACH operator in one of its batches. The operator would then route the request to each employee’s financial institution, instructing it to credit the recipient’s account at the specified time.

With the exception of the US Treasury, ACH credit settlement times cannot be more than two days in the future.

Typical Direct Deposits

Salary
Government payments such as Social Security and stimulus payments
Reimbursements
Disbursements
Annuities, dividends, and interest payments
Refunds

ACH Debits

The ability to debit accounts separates ACH from its bank-to-bank payment method alternative, the RTS network. An ACH debit is an electronic transaction that “pulls” money or takes it from one person’s account and moves it to another. ACH debit transactions are initiated by the person receiving the funds, with the payer’s consent. ACH debits are also referred to as direct payments.

Examples of ACH debits include payments on regular or recurring invoices, such as automatic bill payment, where you and the customer have a standing agreement that they will pay an agreed-upon sum at a recurring set time. Recurring donations and subscription fees are also examples of ACH transactions that your company can use, with authorization, to pull money from customers’ accounts into your business account.

The routing system works similarly to that of ACH credits, but in this case, the billing company is sending requests for payments by pre-authorized accounts to the ACH operator. The operator sorts and sends the requests to the appropriate banks, which then remove the agreed-upon amount from the recipient’s account.

ACH debits account for just over half of all ACH transactions and generally settle more quickly than ACH credits–often in the same day. ACH debits cannot have a settlement time of more than one day in the future.

Typical Direct Payments

Paying a bill
Covering recurring subscription costs
Making a donation
Purchasing things
Sending money to a friend

Same-Day ACH

A relatively new type of ACH payment was introduced in 2016. As the name implies, these are expedited ACH payments that are settled on the same day they are sent. To be eligible for Same-Day ACH, files must be submitted to the ACH operator by 4:45 p.m. ET. Same-Day ACH transactions are capped at $1 million.

ACH Payment Codes

While ACH payments probably fall into the categories above, the ACH network does code payments differently depending on characteristics such as whether the transaction is consumer or corporate, whether it’s recurring, and any authorization required beforehand. These codes will generally be invisible to both businesses and customers unless you’re dealing with payment processing infrastructure in-house.

ACH Credit Codes

SEC Code	Characteristics	Authorization
CCD/CCD+ (Corporate Credit)	Corporate to corporate	Agreement required between companies
CIE (Customer Initiated Entries)	Consumer to corporate	Presumed agreement between consumer and company
CTX (Corporate Trade Exchange)	Corporate to corporate	Agreement required between companies
IAT (International ACH Credit)	Corporate to consumer/corporate	Oral or written agreement or agreement between companies
PDD/PDD+ (Pre-arranged Deposit)	Corporate to consumer	Oral/non-written
WEB (Internet Intiated/Mobile Entries)	Corporate to consumer	No authorization by the Receiver

ACH Debit Codes

SEC Code	Characteristics	Authorization
ARC (Accounts Receivable Entries)	Consumer to corporate	Notification prior to acceptance of the check
BOC (Back Office Conversion)	Consumer to corporate	Notification prior to acceptance of the check
CCD/CCD+ (Corporate Debit)	Corporate to corporate	Agreement required between companies
CTX (Corporate Trade Exchange)	Corporate to corporate	Agreement required between companies
IAT (International ACH Debit)	Corporate to consumer/corporate	Oral or written agreement or agreement between companies
POP (Point of Purchase)	Corporate to consumer/corporate	Notification prior to acceptance of the check and written authorization
POS (Point of Sale)	Consumer	Written
PDD/PDD+ (Pre-arranged Payment)	Corporate to consumer	Written
RCK (Represented Check Entries)	Corporate to consumer	Notification prior to acceptance of check
TEL (Telephone Initiated Entries)	Corporate to consumer	Recorded oral or written authorization confirming oral authorization
WEB (Internet Intiated/Mobile Entries)	Corporate to consumer	No authorization by the Receiver

ACH Payments VS eChecks VS ETFs

The terms echeck and EFT are often used in discussions of ACH payments, but have their own distinct meanings:

EFTs: EFT stands for electronic fund transfer, and it refers to the process of transferring money electronically from one bank account to another bank account. ACH payments and e-checks are both forms of EFT. In fact, EFT is a broad term that also includes wire transfers, point-of-sale transactions, telephone bill-pay plans, and even ATM transactions.
eChecks: E-checks refer to a specific process of moving money electronically from one bank account to another. An e-check mimics the process of paying by paper check, just without the paper check. During the processing of an e-check, funds typically are transferred via an ACH transaction. In other words, e-checks generally are a type of ACH transaction — but not all ACH transactions are e-checks.

Note: E-checks are an especially important form of payment for high-risk businesses that may not be able to use other payment methods. If you’d like to dig deeper into how e-checks work and learn how they can benefit your business, check out our complete e-check payment guide.

The Final Word On ACH Transaction Types

Whether you’re using ACH to credit or debit an account, ACH transactions provide a secure and low-cost method of moving money between accounts.

Looking to add ACH transaction support to your payment processes? We can help you compare ACH processors. When choosing an ACH processing account, it’s essential to consider factors such as transaction fees, security features, and integration options with your existing payment systems.

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Chris Motola

Expert Contributor at Merchant Maverick

Chris has been writing about small business topics since 2003. He has been featured in Fox Business, ABC News, Yahoo Finance, GoBankingRates, Newsweek, BizJournals, and other publications. He has a Bachelor’s of Arts in English Writing Arts from SUNY Oswego, and a Masters of Science in Interactive Media from the University of Central Florida.

View Chris Motola's professional experience on LinkedIn.

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