ACH payments are electronic payments that go through the Automated Clearing House (ACH) Network. Funds move from one bank account to another with the help of a centralized system that directs funds to their final destination.
The ACH network facilitates electronic money transfers and automatic payments between more than 10,000 banks and financial institutions. Direct deposits, paychecks, tax refunds, and bill payments are some of the most common forms of ACH payments. ACH transactions can occur between an individual and a business, between an individual and a government, between businesses, and between individuals.
At its core, the Automated Clearing House is a system of computers. The ACH operates digital payments and transactions in batches at several points throughout the day. While a payment typically settles the next day, the network allows a few additional days to process any potential errors, rejections, or reversals.
There are two basic types of ACH payments: ACH debit payments and ACH credit payments. ACH credit payments are initiated by a payer of funds, while ACH debit payments are initiated by the recipient. Payers and recipients must authorize these transactions before they can be completed.
What are some scenarios when ACH payments are used?
- You submit an electronic payment to a service provider.
- Your employer deposits money to your checking account.
- You transfer funds from one bank to another.
- A business electronically pays a supplier for products.
- A taxpayer sends funds online to the IRS or other organizations.
What are some great benefits to using ACH payments?
- When setting up as a recurring payment, you don’t need to remember to make payments each time
- No need to write out checks (and no need to re-order checks once you’ve used them all)
- No need to mail payments and pay postage
- No need to wait for the postal service to deliver payments or worry about lost mail
- Easier to track payments since payee names appear on your bank statement or financial software
- More environmentally-friendly (checks and envelopes use paper, and delivering them uses fuel)
Perks for businesses to use ACH
Easy to handle:
Electronic payments arrive quickly and reliably. There’s no need for a business to forward checks to the bank and wait a few days to have the funds deposited.
Less expensive than plastic:
For businesses that accept payments by credit card, it often costs less to process an ACH transfer than it costs to take a credit card payment. However, ACH does not give you a real-time approve/deny response like a credit card terminal would.
Long-distance payments:
Businesses can accept payments by ACH remotely, although the same is true for credit cards. If your customers don’t have credit cards or they prefer not to provide their card information regularly, ACH can provide a solution.
Perks for consumers to use ACH
As an individual, you can send or receive payments via ACH if a business or other organization is on the other side of the transaction. Direct person-to-person ACH payments are hard to establish, but it’s easy to send funds with an intermediary involved.
Third-party apps:
Several apps and payment services allow you to send funds to friends and family for free. Those apps provide a front-end to your bank account, and they often use ACH to make deposits and withdrawals for you.
Bank offerings:
Your bank may have a person-to-person (P2P) payment service that allows you to send money as well. Contact Heritage Bank for information about how to use Popmoney.
Same-Day payments:
Traditional ACH payments typically take two to three business days, although weekends and holidays can slow down the process. In today’s on-demand world, that’s too slow—especially for an electronic system.
Are ACH payments safe?
If you’re concerned about security, ACH is a safe way to pay. In some ways, ACH is safer than writing checks. You only need to expose your bank account information once to establish ACH payments, whereas paper checks expose your information every time you write one. Checks can also get lost or stolen, while ACH payments move money directly from your account to your biller’s account.
Even though problems are rare, you’re protected under federal law if any ACH errors or fraud do turn up in your account. The only catch is that you need to act fast and report those problems to your bank within 60 days.
Thanks and credit goes to thebalance.com and smartasset.com for your resources!
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