Wondering What an ACH Payment is?

ACH has touched your life in many ways and you may not have known it.

With an ACH transfer, you don’t need to wait for that check in the mail, stand in line to pay your bills. You can easily receive payments from vendors and suppliers, and you don’t need to make a trip to your bank to move money. Your employees get paid on time, you avoid credit card processing fees, and much more.

What’s It All About?

ACH (Automated Clearing House) is more than 40 years old. It is an electronic network which facilitates financial transactions, enabling funds to be transferred electronically between banks. These transactions are typically of a low-value nature and the process supports both debits and credit payments. It is a national, batch-based system, operated by the Federal Reserve.

Reports of a 2018 survey conducted by the Electronic Payments Association show that 21.5 billion transactions valued at upwards of $46.8 trillion were processed in 2017.

More than 80% of American businesses and merchants use the ACH system to process all or certain facets of their payments. It is used typically by:

  • customers paying for goods and services
  • employers paying their staff
  • payment of taxes and utility bills
  • business payments to suppliers
  • consumers activating interbank movement of money

Benefits and Disadvantages

ACH helps your business in several sectors.

  • Enables easy, fast and cost-effective transfer of funds
  • Saves on paperwork and postage, check-printing, and envelopes
  • Reduces trips to the bank to enable regular and fixed payments
  • Low fees compared to credit cards
  • Enables electronic documentation of all transactions
  • Allows credit transfers, non-urgent transfer of funds, between countries, customers and businesses
  • Ideal for direct payments of consumer charges like payments for utilities, insurance, mortgages, loans, and rents
  • Consumers may prefer it because it can be set for auto payments, third-party payments to friends/family, or same day payments

How It Works

You may have noticed the term ACH on your bank statements or bills without knowing what it does. In a typical example of a check traveling from employer to employee bank account ACH works in this format:

  • The employer, for example, initiates the ACH transaction
  • Makes a request to transfer funds from their account to employee’s account
  • This request has to be submitted to the consumer’s financial institution that holds the funds, typically a bank.
  • ACH operates like a middleman and all such requests travel through it. Here, ACH receives the request and passes it to the appropriate bank
  • ACH sends the request further to the receiving financial depository institution or bank
  • This institution credits the funds to the employee’s account
  • The funds cannot be viewed immediately in the receiving account since they are processed batch-wise
  • The actual deposit of funds may take one or two business days but the process has been accelerated with recent changes to regulations

For more information about what an ACH payment is, or to sign up for a merchant account, please call (888) 924-2743 or go to Charge.com.

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