Understanding ACH Payments and Their Benefits for Your Business

What Are ACH Payments?

An ACH payment is an electronic money transfer. 

ACH stands for Automated Clearing House, a U.S.-based network for electronically moving money between bank accounts. This ACH Network is governed by Nacha, the National Automated Clearing House Association.  

Businesses, individuals and government agencies use the ACH Network to make about 31.5 billion payments annually, according to Nacha. ACH debits are used to transfer money from a bank account for reasons such as bill pay. ACH credits are used to deposit money in an account, such as when a business pays a refund to a customer. 

How ACH Payments Work

The ACH Network involves three main entities: the ACH Operator, the Originating Depository Financial Institution (ODFI), and the Receiving Depository Financial Institution (RDFI). 

First, the ODFI sends a request to the RDFI to transfer funds. Then, the RDFI receives the ACH request and checks via the ACH Operator to see if there are enough funds in the outgoing account. 

For example, imagine that you receive compensation from your employer via ACH Direct Deposits (92% of American workers do!). Your employer’s bank or credit union is the ODFI. They send your payment file to one of two ACH Operators: the Federal Reserve and The Clearing House. The Operator sends the payment to the RDFI—in this case your bank. The same is done in reverse if you authorize a payment to be debited from your bank account—say, to pay a monthly utility bill.  

ACH payments can be initiated through most financial institutions’ online member portals or over the phone. 

Benefits of ACH Payments

ACH payments offer many advantages over other payment options, such as checks: 

• Cost Savings—Direct Payment (ACH debit) and Direct Deposit (ACH credit) are more cost-effective than some other methods for accepting and making payments. For instance, accepting ACH payments typically costs less than accepting card payments.

• Reliability—ACH transactions have a low payment failure rate. 

• Efficiency—Automating payments saves time and money. 

• Speed—According to Nacha, 80% of ACH payments settle in one banking day or less. With Same Day ACH, you can pay in as little as a few hours. 

• Ease—It’s simple to start accepting or making ACH payments. 

ACH payments may also come with a few downsides. They aren’t accessible to unbanked consumers. While relatively fast, they aren’t instant. And they can only be made between U.S. accounts. However, in many cases, the benefits of ACH payments outweigh the potential negatives. 

Accepting ACH Payments as a Business

The steps to accept ACH payments for your business are:  

• Open a business bank account. 
• Select a provider. Payment processing providers include Square, PayPal and Stripe. 
• Enable ACH Direct Payments for your Point of Sale (PoS) or use a payments gateway if you are accepting payments online. 
• Request customer authorization to debit funds from their account. Then set the payment amount and date of payment.  
• ACH payment processing can be automated for recurring payments.

Need to make ACH payments to your customers or workforce? When processing payouts at scale, it’s often most efficient to use a corporate payments gateway, such as Onbe. 

ACH Payment Processing Fees

The cost to process ACH payments varies depending on the provider you use. Providers typically charge transaction fees for each payment, and in some cases, there may be additional monthly fees.  

ACH Network and Security

The ACH Network ensures secure ACH transfers using methods such as encryption, authentication and authorization. As a result, ACH payments are significantly more secure than checks. While 65% of businesses experienced check fraud according to the most recent data from the Association for Financial Professionals, about half that number reported ACH debit fraud and just 19% saw ACH credit fraud. 

One area where ACH payments may be vulnerable is Business Email Compromise (BEC), a type of cybercrime that uses tactics such as social engineering to obtain sensitive payment information or request money via email. While ACH credits tended to be the payment method most used in instances of BEC, providing employee training and using a secure payout solution can help prevent and mitigate this and other types of fraud.    

How Long Does an ACH Payment Take to Process?

Most ACH transactions take 1 to 3 business days to process. Transfer times can vary depending on the time of day the payment is initiated. 

Need to send funds faster? Same Day ACH is a premium option that allows payments to be processed in hours, not days. This option could be ideal for providing insurance claim payouts, disaster relief, same-day pay, customer refunds, and other cases where time is of the essence.  

Who Uses ACH Payments?

Almost everyone! The ACH Network spans the nation, reaching accounts at all U.S. banks and credit unions. ACH payments are used for a wide range of transactions, including payroll, bill payments, getting tax refunds, and more. According to Nacha, the majority of U.S. workers receive their pay using ACH, and 99% of Social Security payments are made through the ACH Network.  

ACH Payment Limits

Your ACH payment limits vary depending on your bank. While Nacha has approved a limit of $1 million per transaction for Same Day ACH payments, most banks offer much lower limits—for instance, $1,000 per transaction or up to $25,000 per day. Check with your bank to learn more.  

Choosing an ACH Payment Processing Company

Whether you need to make or accept ACH payments—or both—choosing the right partner is key to ensuring the security, efficiency and cost-effectiveness of your payment operations. When choosing an ACH payment processing company, consider the following: 

• Transaction Volume—Make sure your provider can handle the volume of ACH payments you need to make or receive, both today and as your business grows.  

• Transaction Fees—Consider the cost-effectiveness of the solution. 

• Security & Compliance—Your payment processor must adhere to Nacha rules and regulations as well as best practices for fraud prevention.  

• Features & Capabilities—Ensure your provider can support the capabilities you need, whether that’s setting up recurring ACH payments, using Same Day ACH, or seamlessly integrating with your other software solutions. 

• Payment Choice—ACH payments offer many advantages, but not every consumer prefers this option. Working with a provider that supports a variety of digital, traditional and electronic payment methods, from card payments to popular apps, can help your business stay flexible.  

• Customer Support—Choose a partner with a track record for resolving customer issues quickly and satisfactorily.   

Implementing ACH Payments for Your Business

When choosing an ACH payment processor, you may have several options for integrating with their solution—from APIs to custom builds. Factors involved include the size and complexity of your payment operation, the level of customization you require, and how hands-on you’re willing and able to be during the implementation. No matter how big or small your business or how new you are to the payments landscape, there is likely a solution to fit your needs.  

Conclusion

ACH payments are a popular, cost-effective payment method for both accepting and paying out funds. They offer a range of benefits, including lower fees, security, and fast processing times. And most consumers are familiar with ACH payments.  

By understanding how ACH payments work and choosing the right payment processing company to handle your ACH transactions, your business will be ready to serve customers and team members with a quick, safe and widely trusted payment method.