How does ACH work?

What is ACH?

ACH (Automated Clearing House) is a network that facilitates electronic transactions between financial institutions. In layman’s terms, it’s the engine behind direct deposits and direct payments. Businesses increasingly favor ACH payments as an alternative to checks and credit cards due to its lower transaction costs and greater security.

For those considering ACH as a payment option, we’ve compiled a brief introduction to get you started.

How does ACH work?

The ACH network is a batch network, meaning banks send all requests for debits and credits that they receive throughout the day in a single batch to one of the network’s ACH operators. The network will then settle transactions within one to two business days.

How secure is ACH?

ACH is a federally regulated network with security enforced by NACHA(National Automated Clearing House Association). Consumers can dispute a charge within 60 days if: a) The transaction was not authorized by the account holder; b) The transaction was processed earlier than it was authorized; or c) The transaction amount is different than the amount authorized.

What’s the difference between using ACH & checks?

Unlike checks, which have to be mailed and processed manually, ACH delivers payment-related data electronically and processes it in batches, making the entire process faster and less costly.

What’s the difference between ACH & the Credit Card Network?

Unlike the credit card network, ACH transactions do not share financial data with third party processors. Additionally, costs are typically lower. This means the larger the transaction amount, the greater the benefits of using ACH to process payments. However, while credit cards are able to provide real-time authorization of funds, ACH settles transactions in one to two business days. This means you have to request your transaction in advance to ensure it is settled on time.

Is ACH right for me?

For some, ACH is a great solution to decrease costs and security risks. It is especially beneficial for those sending large sums or recurring payments. However, it is not the right fit for everyone. The more you know your customer, the better you will be able to determine whether they are willing to send payments directly from their bank accounts.

More ACH Facts:

  • The ACH network was formed in 1974 as an alternative to the rapid increase in paper check volume in the US.
  • ACH is responsible for moving more than 20% of all electronic payments in the US (about $39 trillion each year).
  • The most common use-cases of ACH are online bill payment, mortgage and loan repayment and direct deposit of payroll.
  • The Federal Reserve Banks are the nation’s largest ACH operators.
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