ACH Payments and ACH Transactions: How Do They Work and How Long Does an ACH Transfer Take?
To say there are numerous ways to make or receive payment is a huge understatement.Today, business owners need to consider not only the many payment methods available, but also what options are most cost-effective for the business, and which options will resonate most with their customers. While electronic payments innovations such as mobile wallets and peer-to-peer payments will continue to grow, there are several essentials for all businesses to consider. One of which is ACH transactions, a staple for all businesses for customer transactions, payroll, and more.
There is a lot of terminology surrounding payment processing, and ACH payments have their own vernacular.This article discusses what you need to know to better understand the ACH payments, including how do ACH transactions work and how long does an ACH transfer take.
TL;DR
- The terms ACH payment and ACH transfer are interchangeable in meaning and work by moving funds from one bank to another through a centralized system (the Automated Clearing House).
- ACH debit transactions typically take 1-3 days to process while ACH credits usually take one day to process; however, same-day ACH payments are also available for most transactions if needed with a small additional cost.
- ACH transactions are typically far less expensive than wire transfers or credit card fees, especially for larger transactions.
What is the Automated Clearing House (ACH) Network?
The average consumer may not realize they regularly make and receive payments from the Automated Clearing House network (ACH), but this network was responsible for 30 billion in payments, totaling nearly $77 trillion in transactions in 2022.
Electronic transactions have taken over in popularity, and paper checks are starting to feel like a vestige of a bygone era. The ACH network is already in use for most organizations in the form of ACH direct deposit payroll and recurring payments done outside of debit and credit transactions.
Two Types of ACH Payments
ACH Direct Deposits
Direct deposits are payments sent from the government or businesses to consumers or employees. This includes government benefits, tax refunds, or your payroll. ACH direct deposts are made to a financial institution using the routing number and bank account number of the receiving institution to direct funds into the checking or savings account of the recipient.
ACH Direct Payments
These are payments used by individuals or businesses to pay for goods or services. ACH direct payments, also known as ACH debit transfers, are a bank transfer from the consumer or business bank account to the recipient account.
Examples of ACH Transactions
93% of Americans are paid through direct deposit, meaning that the Automated Clearing House network is a part of the daily lives of most of the country already. Other types of ACH transfers are as follows:
- Paying an electricity bill with your bank account
- Transferring money to a friend from one bank account to another (Venmo, Zelle, PayPal, Cash App)
- Paying for a wedding venue rental with routing and bank account information
- Businesses paying for supplies with their business checking accounts
How Long Does an ACH Transfer Take?
One of the most frequent questions we get is, how long do ACH transfers take? An ACH debit transaction such as bill payments through your bank will typically take 1-3 business days to process. ACH credits, such as payroll direct deposit or payment to vendors and third-parties take about one day to process.
The ACH network processes payments for 23 ¼ hours each business day and settles transactions in batches four times per day during business hours of the Federal Reserve.
What are same-day ACH transfers?
Starting in 2016, NACHA made same-day processing of ACH transfers available. With a same-day transfer, there are a few considerations to be aware of including the cost and time of day for same-day processing.
First, the originating depository financial institution (ODFI) has two windows of time to submit the transaction to the ACH Operators: a morning submission deadline of 10:30 AM EST with a settlement time of 1 PM EST, and an afternoon submission deadline of 2:45 EST with a 5 PM EST transaction settlement time.
If the cutoff time is met, the receiving depository financial institution (RDFI) will have the funds available same-day. The RDFI is required by NACHA to receive same-day ACH payments and make them available in the recipient’s account by 5 PM local time (for the RDFI). If the cutoff time is not met, the funds should be available in the receiving bank the next business day.
Also worth noting is there is an additional fee for same-day ACH transfers, this entry fee is 5.2 cents and is paid from the ODFI to the RDFI for each same-day ACH transaction. The collection and disbursement of these fees are handled by the ACH operators and reflected on the monthly statement.
In summary, when processing a same-day ACH transfer, the cutoff timelines matter, but in any case, ACH processing is often even faster than settling a credit card transaction.
How Much Money Goes Through ACH Payment Processing?
Direct deposit combined with other payments and deposits, such as mortgage and utility payments, tuition and recurring subscriptions, made through the ACH network exceed 77 trillion dollars annually.
The terms ACH payment and ACH transfer are interchangeable in meaning and work by moving funds from one bank to another through a centralized system (the Automated Clearing House). This payment method saves time and money for the business and customer, and is ideal for many types of payments, including but not limited to recurring and scheduled transactions.
Take control of getting paid and say goodbye to the stress of late payments with ACH Debit. Automate collection and reconciliation, saving time usually spent on financial admin.
Related Content: 5 Benefits of ACH Payments Over Check Payments
ACH Payment vs Credit Card Payment
Credit card payments are straightforward and well known. The card number, expiration date and CVV security code are required to process a payment or send a refund. The average credit card processing fee varies, but is typically between 1.4-3.5%, excluding other monthly fees to the merchant services provider and other costs of equipment.
Credit and debit card transactions may be costly for merchants but are a mainstay of business operations. Digital wallets linked to credit and debit cards are also gaining traction in small and large businesses. These offer a convenient solution for the customer, with fees similar to those of a typical swiped card transaction.
How Much Does it Cost to Process ACH Payments?
ACH payments are done directly through a bank account, requiring the name of the bank, type of account (checking or savings), and the routing and account number. ACH transfers usually take one to three business days to complete and can be a lower-cost option for businesses (the average cost of a transaction is about $.29).
These payments are commonly used for direct deposit payroll, recurring bill payments, large business-to-supplier transactions, and payments and refunds to and from the IRS.
ACH Payments vs. Wire Transfers vs. EFT Payments
The main difference between an electronic funds transfer (EFT) and ACH payments is that EFT is a term for all types of digital payments, but ACH is a specific type of digital payment—so ACH is a type of EFT payment.
Whereas, wire transfers may seem similar to ACH payments on the surface but they have a few key differences. Wire transfers are more costly, with an average charge of $10-$35 per transaction, and operate like an electronic cashier’s check. This means that when sending a wire transfer, the funds are immediately pulled from the sender’s account and cannot usually be reversed.
Processing time is faster with wire transfers and usually cleared within the same business day. Wire transfers also have a level of risk associated with them because once sent, they are difficult to cancel. Wire transfers can be done internationally, which is both a benefit and a risk. Verifying the recipient is imperative to protect against fraud and users should be careful when sending a payment via wire transfer.
ACH Credit Transfers (ACH Push Payments)
ACH payments are usually divided into push payments and pull payments. Push payments send money, and pull payments collect it. Though they are similar, they work in slightly different ways. Push payments (also known as ACH credit transfers) are transactions, where the payer instructs their bank to send money from their account to another account, vs a pull payment where you provide bank account information to the payee and the amount is then withdrawn.
ACH Transfer Transaction Limits
According to the National Automated Clearing House Association (NACHA), which manages ACH payments, ACH transfer limits, as of March 18, 2022, the Same Day ACH dollar limit has increased to $1 million per payment.
However, ACH transfer limits are subject to other rules on how much money can be moved. These limits can be per day, per single transaction or per single month depending on the bank. And it is likely that your incoming ACH transfer limits may still average around $25,000.
Benefits of ACH Payments
Now that we’ve covered the fundamentals of ACH payments, let’s look at some of the benefits of this payment type.
Less expensive than other methods of payment
One of the main benefits of ACH payments is the cost savings for large transactions. ACH transfers cost 1% of the transaction amount, with a cap of $10, so they’re less expensive than wire transfers or credit card payments.
Great for recurring transactions
Recurring payments are convenient via the use of ACH transfers and are already in use for many consumers for transactions like automatic bill pay. An added benefit for the consumer and businesses using ACH transfers is not being inconvenienced by expiring credit and debit cards, as bank account numbers do not change unless an account is closed or compromised.
While most payments are made either electronically or through ACH transfers, checks are still in use for many. The convenience factor for ACH deposits is a big draw to move away from paper check payments. For a customer using checks, they have to remember to make the payment, write out and mail the check and then wait for the postal service to deliver and payment to be processed. This adds days to the process and leaves a lot of opportunity for human error.
Using an ACH payment means the customer does not need to remember to pay the bill, the processing time is sped up, and the business doesn’t need to physically deposit a check and wait for it to clear.
Safe and secure
ACH is also a safer option for customers since they only need to share their banking information once with the business, reducing the risk of lost or stolen checks or exposing credit card information online. Since ACH payments are not immediate, they are able to be reversed which makes it harder for a bad actor to compromise banking information.
More convenient for your customers
Since ACH transactions can be a safer payment option for customers, and reduce fees that a merchant may pass on, this means that an ACH payment is often the preferred option for your customers.
How to Accept ACH Payments
Many businesses already offer a variety of secure payment options to their customers. Giving customers the ability to choose what suits their payment preferences can encourage purchases and increase business; and companies benefit by being able to accept payment in multiple forms, eliminating a potential barrier to purchase.
If you’re planning to accept ACH payments and enable ACH transactions between your business and your customers, here are some steps you can take to get started.
1. Determine the role of ACH payments in your business
As with any business decision, it’s important to determine how ACH payment adoption fits into your strategy. Before implementing it, be sure to have a clear business case for ACH transactions.
Do you have customers who are requesting the ability to work with ACH direct deposits? Will ACH streamline processes, improve the customer experience, and ensure that you actually get paid? The answers to these questions will help you figure out if there truly is a need for ACH payments, and if so, how to implement them properly.
2. Choose the right payments processor
The next step is to sign up with a payments processor that supports ACH payments. It’s best to choose a provider that supports multiple payment options (i.e., credit cards, ACH, invoicing, etc.) from one solution. Doing so streamlines payment processing, and it also makes reporting and analysis easier, since you’ll be able to see the status of various payments under one platform.
For instance, if you want to monitor and manage settlement and funding status for ACH payments alongside your credit card transactions, you can do so if all your payments are handled through a single solution.
Stax is an all-in-one payment platform that allows for merchants to collect all manner of payments with transparent pricing, and no contracts or hidden fees. Implementing this solution can increase convenience for the customer and lower costs for the merchant.
With Stax, businesses can accept payment through swiped cards, manually keyed payments, text-to-pay, mobile payment integrations – and of course, ACH transfers. Payments are made simple, and the platform also provides data and analytics and financial reporting to better understand sales trends. These capabilities make Stax an affordable and convenient solution to accept all payment types without having to manage multiple payment systems.
Stax charges a monthly membership fee instead of pay by transaction model, making it ideal for high-volume transactions. The monthly membership fees depend on the capabilities a business enables and offer predictability in monthly costs and transparent pricing.
3. Figure out the logistics of ACH transfers in your business
You should also iron the steps you need to take to enable ACH payments. You have a number of options here, including:
- Using a virtual terminal. You can enter your customers’ account information into your virtual terminal, similar to how you would deal with keyed-in credit card transactions. This option is best used when taking payments over the phone or via mail order.
- Setting up online payments with an option to pay using ACH. If you’re conducting business online, you can add an option to take payments via ACH and ask customers to enter their account details. The specifics of this process will depend on the payment gateway you’re using, so check with your provider on how to enable ACH payments online.
Also Read: What is an ACH Return and What Should You Do About It?
ACH Transactions: Key takeaways
ACH transfers are a safe and convenient way to pay and offer significant cost savings for large transactions and recurring payments – especially when compared to credit cards and wire transfer fees. With many options to choose from, deciding on the payment processing merchant is an important decision for any size business.
Considerations for the type of business, amount, type, and volume of transactions, and customer demographics will determine the best fit. Many providers offer several solutions, and finding the best fit for the business helps to manage costs and provides a streamlined and convenient experience for customers.
As technology advances, savvy consumers expect options to suit their needs. Offering a variety of payment options, including ACH transfers is a safe and convenient way to better serve customers and grow business.
Request a custom quote to see how the Stax can add ACH payments to your business.
FAQs about ACH Transfers
Q: How long does an ACH transfer take?
ACH debit transactions like bill payments via your bank usually process in 1-3 business days. On the other hand, ACH credits, including payroll direct deposits or payments to vendors and third parties, typically take around a day to complete. Every business day, the ACH network operates for 23.25 hours and consolidates transactions in four batches within the Federal Reserve’s working hours.
Q: What are the common use cases of ACH transfers?
Common use cases of ACH include ACH direct deposit for payroll and recurring payments that are not processed as debit or credit transactions. Given the rise in electronic transactions, many organizations have transitioned away from paper checks, preferring the ACH network for its efficiency and convenience.
Q: How much do ACH payments cost?
The short answer: the average cost to process an ACH payment is $0.29
That said, ACH payment processing costs vary based on several factors, including the bank or financial institution, the payment processor and the volume of transactions.