Need help figuring out what ACH payments are and how to use them for your business?
ACH payments are types of payment that are used for various types of transactions. You may have heard of this term before but weren’t sure what it meant or how to use it. My guide will explain everything you need to know about this type of payment so you can feel confident using it for your business dealings.
Make sure your business uses the most up-to-date and secure payment methods by accepting ACH payments. Then, you can implement them into your checkout process. It’s easier than you think and can be done in a few simple steps.
I spent over 15 years working with ACH payments. So I understand the ins and outs of implementing ACH payments and how your business can accept ACH payments. I have you covered, from what they are to how they work! So keep reading to learn more about this payment method!
What Are ACH Payments?
ACH payments are electronic payments made directly from one bank account to another through the Automated Clearing House (ACH) network. These secure and convenient payments allow funds to be transferred quickly and easily between bank accounts. ACH is a safe and reliable way for businesses to accept payments. It simplifies receiving money and reduces the risk of payment fraud.
ACH Categories: Debit vs. Credit
ACH payments can be divided into two main categories: debit and credit. Both types of ACH transactions involve the transfer of funds electronically. Still, they differ in terms of the parties involved and the purpose of the transaction.
ACH Debit: a “pull” transaction from the individual to the merchant or service provider
ACH Credit: a “push” transaction from the employer or agency to the individual
ACH Debit transactions
An ACH debit transaction transfers funds from one bank account to another. The funds are withdrawn from the account from which the money is transferred. This is a “pull” transaction. This type of ACH transaction is initiated by the individual and is authorized by their financial institution. Then, the money is transferred from the individual’s account to the merchant or service provider’s account. This transaction is commonly used for bill payments and other recurring payments. This is also known as direct payment.
ACH Credit Transactions
An ACH credit transaction also transfers funds from one bank account to another. But these funds are deposited into the account where the money is transferred. This is a “push” transaction. This type of ACH transaction is initiated by an employer or government agency. It is authorized by the employee or recipient. The money is transferred from the employer or agency’s account to the recipients. This transaction is commonly used for direct deposit of payroll, government benefits, and other payments. This is also known as a direct deposit.
In simple terms, an ACH Credit transaction is an “incoming transaction,” and an ACH Debit transaction is an “outgoing transaction.”
How Does an ACH Payment Work?
Making a transaction via ACH payments typically involves four steps.
- The money is transferred from the sender’s bank account to the ACH network.
- The payment is routed through the ACH network to the recipient’s bank account.
- The recipient’s bank verifies and approves the payment.
- The funds are released into the recipient’s account.
These steps make ACH payments a fast and secure way to transfer funds between parties.
How To Accept ACH Payments
Accepting ACH payments is easy. Here are the steps to follow:
- Sign up for an ACH merchant account with a bank or a payment processor.
- Provide the necessary information, such as your business name, tax ID number, and bank account details.
- Get a payment gateway to integrate with your website or shopping cart.
- Add a form to your website that captures the customer’s bank account and routing number.
- Once the customer submits the form, the payment gateway will process the ACH transaction, and the funds will be transferred to your bank account.
It’s important to note that some financial institutions may require additional information or steps to set up an ACH merchant account. Also, depending on your country, you may need to comply with specific regulations and guidelines.
By following these steps, you’ll be able to accept ACH payments from your customers, making it easy for them to pay for your goods or services.
Are There Limits on ACH Transfers?
Yes, there are limits on ACH transfers. These limits are set by financial institutions and the ACH network to ensure the security of the transactions and to prevent fraud. The limits vary depending on the type of ACH transaction and the financial institution.
For example, most financial institutions have a daily or monthly limit for the total amount of funds that can be transferred via ACH.
Additionally, there may be a limit on the number of ACH transactions that can be made in a day or month.
Another limitation is that some financial institutions may have different limits for debits and credits. Again, be sure to discuss this with your payment processor.
How Much Time Does It Take to Process ACH Payments?
The processing time for ACH payments can vary depending on a few factors.
Typically, ACH payments take one to two business days to process.
However, this can be affected by the timing of the transaction, the financial institutions involved, and whether it is a direct deposit or a direct payment.
For example, suppose the transaction is initiated on a business day before the cut-off time set by the financial institution. In that case, the funds may be available in the recipient’s account the next business day.
However, suppose the transaction is initiated after the cut-off or on a non-business day. In that case, it may take an additional day for the funds to be available.
Additionally, some financial institutions may have different processing times for direct deposit and direct payments, with direct deposit being processed faster. This can also vary depending on the country you are in.
It is always a good idea to check with your bank or financial institution for their processing times and cut-off times for ACH payments.
How much do ACH payments cost to process?
The cost of ACH payment processing can vary depending on the financial institution and the type of ACH transaction. Typically, ACH payments processed through the ACH network are less expensive than other forms of electronic payment, such as wire transfers.
For example, some financial institutions may charge a flat fee per ACH transaction. In contrast, others may charge a percentage of the total transaction amount. This can also vary depending on the country you are in. Also, some financial institutions may waive fees for certain types of ACH transactions, such as a direct deposit for payroll.
Additionally, some financial institutions may charge different fees for different types of ACH transactions, such as a higher fee for a direct payment than a direct deposit.
The best advice is to check with your bank or financial institution for their specific fees for ACH payment processing and ACH transactions.
Some third-party providers, like payment processors, may also offer ACH processing services. These ACH services may have lower fees for merchants or businesses that process a high volume of ACH transactions.
What’s the difference between ACH payments, wire transfers, and EFT payments?
When transferring money electronically, a few options are available, such as ACH payments, wire transfers, and EFT payments.
- ACH payments are electronic transactions that transfer money directly from one bank account to another. They are typically used for things like direct deposit of payroll and online bill payments. They are considered a less expensive and more convenient option than other forms of electronic money transfer.
- Wire transfers, on the other hand, are a more real-time method of transferring funds. They are typically used for more significant sums, such as when buying a house or paying for a car. Wire transfers can be done through a bank or a wire transfer service. The money is usually available to the recipient within hours.
- EFT (Electronic Fund Transfer) payments are electronic transactions that move money from one account to another. Both wire and ACH transfers are considered EFTs. Other methods of EFTs are peer-to-peer payments like Venmo, ATM transactions, debit card payments, and over-the-phone transactions.
In summary, ACH payments are less expensive and more convenient, and wire transfers are for more significant amounts.
ACH payments vs. Credit card payments
ACH payments and credit card payments are two different electronic funds transfer methods.
An ACH payment is processed through the ACH network. It is a way to transfer money from one account to another, either within the same bank or between different banks. ACH payments are typically less expensive than credit card payments but take longer to process.
On the other hand, credit card payment is a transaction in which the funds are transferred from the consumer’s credit card account to the merchant’s account. Credit card payments are processed through a network, such as Visa or Mastercard. The card network acts as an intermediary between the consumer and the merchant. Credit card payments are typically more expensive than ACH payments but are also faster to process.
Both ACH and credit card transactions have a unique transaction ID that helps to prevent fraud. When a customer or merchant uses these payment methods, their unique ID is associated with the transaction to help identify it. In the case of an ACH transfer, the transaction number can be used for verification purposes when a dispute arises. Additionally, for credit card payments, the transaction ID is used to help track any suspicious activity that may have occurred during the purchase.
Have Questions? We Have Answers.
ACH payments are a great way to send and receive money between banks in the US. They offer lower costs per transaction than other electronic funds transfer methods. Still, they can take longer to process due to being processed in batches.
I hope I answered any questions you had about ACH payments.