ACH payments: how do they work?

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ACH payments: how do they work?

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The ACH network processes billions of transactions every month, which is equivalent to trillions of dollars moving every year. Thus, by the end of 2021, the ACH network processed 29.1 billion payments worth $72.6 trillion. More and more people rely on the ACH system to seamlessly transfer money between each other.

Most likely, you’ve interacted with ACH payments at least once without knowing that this technology is involved. Let's take a closer look at how the ACH payment system works and what valuable features it offers.

What are ACH transfers?

The ACH abbreviation refers to Automated clearing house — a centralised electronic network for processing transactions in the U.S. Being a state-level system, the ACH network is observed and regulated by National Automated Clearinghouse Association (NACHA).

The ACH network was developed to handle large volumes of low-cost domestic transactions for customers, businesses, and governments. The peculiarity of ACH payments lies in the fact that they are processed in batches, being pre-sorted by destination for transmission within a given period.

Here are popular options for using ACH payments:

  • Taxes
  • Bank transfers
  • Investments
  • Wages & Salary
  • Person-to-person transfers
  • E-commerce payments
  • B2B payments
  • Donations

There are two types of ACH transfers. ACH credit transfers are initiated by the payer. This type includes direct deposits, payrolls, retail payments, and payments to vendors. ACH direct debit transfers are initiated by the payee with pre-authorisation from the payer. This type is often used in recurrent billing.

How do ACH transfers work?

ACH transactions aren’t real-time. Instead, banks use batch processing, distributing transactions to recipients one or more times a day. That’s why ACH transfers can take up to two business days to be received. Although ACH payments are not instant, they are gaining traction due to their relatively low cost and lack of intermediaries in processing.

To make an ACH transfer, the party requesting the payment (whether it wishes to send or receive funds) must obtain bank account information from the other interested party. For example, the employer must obtain information about their employees’ checking accounts and routing numbers to send salaries. If there are enough funds in the payer's bank account to process the transaction, the money is transferred to the payee’s account using the centralised ACH network.

ACH payment processing is managed directly between banks, without intermediaries, eliminating all the dependencies and inconveniences that may arise with other payment methods. That’s why more and more businesses are looking for ways to accept ACH payments. Let's talk about other benefits that the ACH network gives to businesses and customers.

Pros and cons of accepting ACH payments

Determined to accept ACH payments? Then we recommend that you know in advance what benefits and pitfalls they have.

ACH transfers are becoming increasingly attractive for businesses for three reasons:

  • It’s cost-effective: The ACH network offers cheaper funds transfers than checks or credit cards.
  • It’s safe: The servers and software of the ACH network are designed with layered security modules to ensure safe transactions for payers and payees.
  • It’s green: Being completely electronic, online ACH payments eliminate the use of paper invoices and checks.

Along with the apparent advantages, some drawbacks may stop you from adding ACH transfers as a payment method to your business. Here they are:

  • Transaction amount limits: Limit amounts may vary from bank to bank, averaging $25,000 per transaction.
  • Speed: Due to the batch processing method, ACH payments can be delivered within 1-3 business days.
  • US-centric system: The ACH network targets US-based banks. International ACH transfers are possible but not widely used.

How to accept ACH payments?

There are several ways to accept ACH payments. For example, if you have a business bank account, all you need to do is provide your customers with its details. After that, you will be able to receive transfers without any confirmation actions on your part.

However, if you plan to accept many ACH transactions or want to set up recurring billing, you will need the services of a third-party processor. Pick a provider that supports ACH transfers, charges reasonable fees, and provides other valuable tools like the payment dashboard to manage and track your transactions.

Looking for a payment partner that will set you up to accept ACH payments online? Corefy is a platform you can completely trust with your payments. Contact us to learn more about the opportunities we bring to businesses worldwide and how your company can benefit from them.

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