What Is An ACH Payment & How Does It Work?
Thinking about adding ACH as a payment option? This complete guide to ACH payments will answer all your questions and help you decide if ACH is right for your customers and your small business needs.
ACH payments are electronic transactions that shift money from one bank account to another. So are ACH transactions safe and reliable?
In this post, we’ll explore all things ACH to help you decide if your small business should accept ACH payments.
Table of Contents
What Is An ACH Payment?
ACH payments are automated digital payments. For most businesses, ACH is generally cost-effective and reliable.
ACH payments use a wireless network called the Automated Clearing House to pull funds from one bank account and push them into another. ACH transactions are available at almost all US-based bank and credit union accounts.
Benefits & Drawbacks Of ACH Transactions
Despite the advantages of ACH transactions, this payment method won’t be right for every small business or for every payment. Let’s take a look at some of the pros and cons of ACH payments.
When you use ACH payments to receive or send funds, your small business can see these benefits:
Although ACH transactions deliver strong benefits, there are some disadvantages as well. Factor these into your ACH planning:
Types Of ACH Payments
You may encounter two types of ACH payments:
1. Direct Deposits
Direct deposits are electronic deposits made automatically into your bank account. Typical direct deposit include:
- Government payments such as Social Security and stimulus payments
- Annuities, dividends, and interest payments
2. Direct Payments
Direct payment refers to the electronic transfer of funds to make payments. This term applies whether you’re sending or receiving the payment because there are two types of direct payments: ACH credits and ACH debits.
Some examples of direct payment are:
- Paying a bill
- Covering recurring subscription costs
- Making a donation
- Purchasing things
- Sending money to a friend
Although your business may use ACH to make direct deposits, especially for payroll, you’ll probably use direct payments more often. When customers pay for their purchases, including subscription fees, recurring payments, and one-time expenses, you’re both using direct payments.
Who Can Use ACH Transfers?
Any business with a bank account within the Automated Clearing House network can use ACH transactions to make it easier for customers to pay. In fact, you can use ACH in many aspects of your business, including in banking and loan payments, to simplify your finance tracking.
Here are some specific suggestions for smart ways to put ACH to work for your business:
- Bill Payment: ACH payments are particularly well suited to utility bills, medical expenses, and tuition payments.
- Payroll Services: Using ACH in accounting to manage payroll via direct deposit is one of the easiest ways to simplify your business bookkeeping.
- Tax Payments: Individual taxpayers who make electronic payments are using ACH payment processing. In business, you can use ACH in accounting to help you make state and federal tax payments easily — and on time.
- Loan Payments: ACH payments are one of the easiest ways to handle business loan repayment.
- Memberships & Subscriptions: From software to professional organizations and everything in between, you probably can set up ACH transactions to make sure payment is made on time, with no lapses or interruptions.
- Rent Payments: Whether you’re the tenant or the property owner/manager, ACH payments are a simple and easy way to pay the rent. You can set up automatic payments, so you don’t have to think about the rent/mortgage each month.
- Recurring Services: Freelancers, coaches, therapists, and contractors don’t have time to track down payments. Let your clients know they can pay quickly via ACH and they may be more inclined to pay.
- Donations: Most of the information in this post relates to sales, but nonprofits can use ACH payments too. If you rely on one-time or recurring donations, invite your patrons to send funds via ACH instead of a check or credit card.
- Merchant Accounts: You probably already have a merchant account set up that allows you to accept credit cards and other forms of payment, like PayPal. Check with your processor to see if you can also accept ACH payments under your existing account.
- B2B Payments: Just as you should encourage your customers to pay invoices via ACH transaction, you should look into setting up ACH payments for your own business bills.
- eCommerce: Your customers are used to paying online with a credit card or a service like PayPal. Steering them toward ACH payments can save you a lot of money in payment processing fees.
- Account Transfers: You can use ACH payments to move funds from one bank to another.
How Does ACH Work?
ACH transfers take slightly different forms, depending on whether they are ACH debits or ACH credits. However, in both cases, the process is almost completely automated once it’s initiated. ACH transactions can be mostly hands-off and easy to manage.
Let’s look at the steps involved in any ACH transfers:
How Long Do ACH Payments Take & When Do ACH Payments Post?
With any kind of electronic payment, you can expect a lag time between when the customer pays and when the money is available for you to access. Here are answers to some common questions about ACH payment timing:
Do ACH Payments Post On Weekends?
Nacha requires banks to process ACH payments by the next business day after the payment requests are received. Note that key phrase “business day.” That tells you that ACH payments won’t be processed on any days that banks typically are closed, such as weekends and holidays.
What Are ACH Batch Times?
Banks hold ACH payment requests as they come in and then process them in batches. Batch processing times can change but are set by Nacha consistently across all banks.
All ACH batch processing is set to Eastern time, so if you’re in a different time zone, your late-day transactions may not process until the next business day.
Do Banks Hold ACH Payments?
When your bank receives funds from an ACH payment, the bank may hold the money for a short time before making it available to you. Typically, this hold time will be no more than one or two days, with most ACH payments processed by the next business day.
ACH payments do not post on weekends or holidays when banks are closed.
Is Same-Day ACH Processing Available?
If you just can’t wait for standard processing times, Nacha enables same-day ACH processing for most types of ACH payments. However, not all US banks and credit unions participate in the same-day program, and there’s no support for international transactions.
If you want to access same-day ACH processing, your expedited transactions may be subject to additional fees. Nacha also imposes a $1 million-per-transaction limit on same-day ACH processing. Your business bank may impose limits on ACH transactions by day, week, or month. Check with your bank for details.
ACH Fees & Pricing
ACH transfer fees depend on how your ACH payments are processed and by whom. For example, if you use a payment processor, you may be charged a percentage or a set fee — or both.
Check out our list of the best ACH payment providers to compare the fees they charge.
If you run ACH payments through your bank, you may pay lower fees. In fact, many of the best business banks offer no-fee ACH transfers. However, the way you process ACH payments may be dictated by your way of doing business and how customers prefer to pay. Talk to your business bank and payment processor for the information you need to make the best choice.
Be aware that the types of fees may vary depending on how you process ACH payments. Ask about flat fees, percentage fees, setup, and monthly fees. Ask about ACH return or reversal/chargeback fees, too.
Here’s what you can expect from some popular ACH processors:
|Account Provider||ACH Processing Fee|
|Novo||$0 for standard ACH, 1.5% for Express (min. $0.50, max $20)|
|Square Business Banking||1% per transaction|
|BlueVine||$0 for standard ACH|
|Chase for Business||$0 for standard aCH|
|Wells Fargo Business Banking||Varies by account type|
|Bank of America Business Banking||$0 for standard ACH|
|Capital One Spark Business||100 transactions/month; additional at $0.50|
|Relay||$0 for standard ACH|
|NBKC Bank||$0 for standard ACH|
|Live Oak Bank||$0 for standard ACH|
|North One||$0 for standard ACH|
|Silicon Valley Bank||$0 for standard ACH|
|Digital Credit Union||$0 for standard ACH|
The Bottom Line On ACH Payments
ACH payments are fast, safe, reliable, and convenient. And whether you’re aware of it or not, you’re probably already using ACH in your business, whether for payroll, recurring bills, rent, or subscription fees.
If you’re not encouraging your customers to utilize ACH payments, you’re missing an opportunity to save money and receive payment not only more quickly, but also more reliably. If your business model relies on subscriptions or any other kind of recurring payment, that’s especially true for you.
Ready to get started with ACH payments? Check out our complete guide to learn how to accept ACH payments so you and your customers can get started setting up and benefiting from this payment method.