real-time ACH transfers shown on two mobile phones

What Are ACH Transfers and How Do They Work?

October 26th, 2021

ACH or Automatic Clearing House transfer is a type of electronic fund transfer (EFT). The National Automated Clearing House Association (NACHA) oversees the ACH network ACH transfers as they are processed. ACH transfers are digital payments that have been increasingly adopted among individuals and businesses. According to PR Newswire, in the second quarter of 2021, the ACH network handled 7.3 billion payments worth $18.4 trillion.

What Are ACH Transfers? 

An ACH transfer is simply the electronic movement of money from one bank to another through the Automated Clearing House Network. This network links banks and accounts across the country to process payments. While credit cards, debit cards and cash payments are convenient for customers, ACH transfers offer more flexibility, security and are the easiest form of payment for recurring transactions. Employers can pay salaries through direct ACH deposits and individuals can pay their bills online through ACH that debits their bank accounts. It is also a cost-effective way to transfer funds in B2B transactions.

ACH transfers offer many unique benefits, including low-cost or free transfers, speed and safety. Moreover, NACHA previously set same-day transaction limits to $100,000. In addition, most banks have their own set of rules regarding ACH transactions including.

Types of ACH Transfers 

ACH transfers generally fall into two categories: direct deposits and direct payments.

  1. ACH Direct Deposit (ACH Credit): This involves “pushing” or paying funds into an account. In other words, a customer initiates withdrawal of funds from their account to the business’ bank account. The types of payments which are directly deposited include tax refunds, paychecks, or government benefits.
  2. ACH Direct Payments (ACH Debit): This involves “pulling” money from an account. When individuals, businesses or the government send money, it appears as an ACH debit in their bank accounts. It can take the form of a utility company pulling money from the customer’s bank account every month.

How Do ACH Transfers Work? 

An ACH transfer requires a sender and receiver. The sender initiates the transaction by handing over some documentation to the bank. The sender can be a customer or company.

The bank then makes an ACH entry after confirming authorization of the ACH transfer. The ACH network, which is the recipient of the information, will then transmit it to the receiving bank. It may take 3-5 days for the receiver to access the funds in their account.

An example is when an employer wants to make a direct deposit of paychecks. An employee will submit bank account information to the employer who will then initiate the ACH transfer and send the ACH entry to the bank. The bank debits the employer’s bank account and sends the ACH entry to the ACH operator. The ACH operator then deposits the funds into the employee’s bank account.

ACH Transfer vs. Wire Transfer 

An ACH transfer and a wire transfer are both digital payments, but ACH transfers are less costly in comparison. Typically, wire transfers cost between $10 -$35 within the U.S. while ACH transfers are usually a fraction of that cost. The high cost is due to wire transfers being speedier, which can take a day within the country or internationally. However, wire transfers are irreversible, unlike ACH transfers.

A wire transfer involves individual transactions handled between two separate banks. This is unlike an ACH transfer, which involves the ACH system processing payments in batches. Both wire transfers and ACH transactions play important roles. Wire transfers are preferable for larger transactions that are time sensitive. ACH transfers are fitting for businesses or individuals who regularly make small-to-medium transactions such as bill payments, retainer fees or supply costs, and want to save on fees.

Partner with VeriCheck for Your ACH Payments 

ACH payments are arguably among the most popular electronic payments today, handling large volumes of transactions. If you are running a business, it’s key to choose a payment method that is fast, flexible, and secure for the interest of your customers and vendors.

VCI can partner with you as an experienced ACH payment provider that has worked with multiple businesses and organizations. We can offer you an innovative and customizable solution to ensure your business makes the most of ACH payments. Feel free to contact us today.