What is ACH? Automated Clearing House payments explained

February 10th, 2023

Are you looking to pay bills or receive payments domestically? Automated Clearing House (ACH) payments are a secure, efficient, and cost-effective way to transfer money between financial institutions.

In this article, we’ll explore the basics of ACH payments, the regulations that control them, and the benefits they offer businesses.

What is ACH?

Automated Clearing House (ACH) is an electronic payment system that facilitates the transfer of funds between financial institutions in the United States. It is managed by NACHA (National Automated Clearing House Association) and regulated by the Federal Reserve Bank.

How do ACH payments work?

ACH payments transfer funds electronically from one bank account to another. The process begins when the payer initiates the transfer through their bank. The bank then sends the transaction to the ACH network, which routes it to the payee's bank, where it is credited to their account. The central clearing system keeps track of the amount of funds owed across the banks and at the end of the trading day it processes the transactions in batches.

Overall, the ACH network provides a secure and reliable way for funds to be transferred quickly and efficiently.

Types of ACH payments?

There are two main types of ACH payments: Direct Deposit and Direct Payment.

Direct Deposit is typically used for payroll, social security, and other government benefits. It allows people to have funds securely deposited directly into their bank accounts, eliminating the need for them to visit a financial institution in person or mail out checks.

While Direct Payment is used for electronic bill payments, recurring payments, and one-time payments. It is a safe and convenient way to make purchases without having to provide credit card information online or worry about physical payment methods such as cash or checks.

What are ACH payment processing times?

The processing time for ACH payments can depend on the type of payment, as well as the banks involved. Generally, ACH payments can take anywhere from two to three business days to clear. However, A lot has been done by NACHA to address the speed limitations of ACH payments and some banks may offer same-day or next-day options for no extra costs.

How to offer ACH payments?

In order to offer your customers ACH payments, you will typically need to integrate and or connect to a bank or a payments provider, connected to the ACH network. Many excellent cross-border payment technology providers are out there, but depending on your available resources, integrating one of these could take many months, not to mention the associated costs ramping up overtime.

Alternatively, you can utilise API-first Fintech infrastructure that includes pre-built cross-border payment integrations to significantly reduce the initial resource costs required to access a global payments network, and enables you to get to market faster.

What are ACH payment processors?

ACH payment processors are financial institutions that provide businesses with the ability to accept ACH payments from customers.

One of our most popular ACH payment providers already integrated into our API infrastructure is Currencycloud.

ACH payment vs wire transfer: what’s the difference?

The main difference between ACH payments and wire transfers is the speed of the transaction. Wire transfers are typically processed in real-time, taking only a few hours to complete, whereas ACH payments can take two to three business days to clear.

Companies should question whether they accept wire transfers as they are more expensive than ACH payments.

What are the benefits of ACH payment processing for your business?

Using ACH payments for your business has many benefits, such as lower transaction fees, increased security, and the ability to automate recurring payments.

Moreover, ACH payments offer a more efficient way to process large volumes of payments, making them a great option for businesses with many customers or clients.

Whether you are a small business owner or a large corporation, we can help you access multiple, local payment rails such as ACH, Faster Payments, SEPA Instant and many more.

Request a demo to find out how you can get money where it needs to go across an extensive global network.

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