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Jul 05 2023

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How Do ACH Payments Work?

ACH payments are a way to transfer money from one bank account to another without using paper checks, credit card networks, wire transfers, or cash.

Direct payment refers to the movement of money to make or receive payments. If you’re paying a credit card bill, donating to someone’s GoFundMe campaign or sending money to a friend via your bank’s mobile payment service, those transactions all fall under the ACH direct payment umbrella.

Direct deposit involves the transfer of payments from a business or government agency to a consumer. Your employer might offer direct deposit, and the government uses it to disburse Social Security benefits and federal tax refunds.

All ACH payments are routed and processed by the U.S. Federal Reserve or the Clearing House Payments Company, a private business owned by 24 of the world’s largest commercial banks.

The Clearing House’s ACH payments service, called the Electronic Payments Network, is responsible for approximately half of all U.S. commercial ACH payment volume. The U.S. Federal Reserve banks handle the other half of ACH transactions.

ACH payments are processed in batches daily—not in real time. This means ACH payments may need more time to transfer between accounts. But since March 2018, same-day ACH payments have become more widely available. And in 2021, the ACH network processed 604 million same-day ACH transfers.

Types of ACH

Transactions on the ACH network are categorized as either ACH credit or ACH debit transfers, depending on which way the money moves.

ACH Credit

An ACH credit means money is being “pushed” from one account to another. The payer in an ACH credit transaction authorizes their bank to move money from their account to someone else’s.

Examples of ACH credit transfers include:

Payroll transfers, such as the direct deposit of paychecks
Social Security benefit payments
Income tax refunds

ACH Debit

ACH debit transactions pull money from one account and send it to another. ACH debits can be authorized manually or scheduled to take place automatically for recurring payments.

Examples of ACH debit transfers include:

Mortgage payments
Utility bills
Credit card or loan payments

Benefits of ACH Payments

The ACH payment network offers benefits to businesses and consumers alike. For businesses, ACH payments make it faster and easier to collect payments from customers. There’s no need for customers to mail a check or pay with cash in person. And ACH payments are generally less costly for businesses to process compared to credit card payments.

For consumers, ACH payments offer a simpler process for paying bills. You can log in to your bank’s website, enter your biller’s details and schedule payments in minutes directly from your bank account. If you want to simplify things even further, you can schedule recurring ACH payments for your monthly bills.

Getting paid via direct deposit can be more convenient than being handed a paper check. With direct deposit, you know roughly when funds will hit your bank account and when they’ll be available. You don’t have to race to the bank before it closes to deposit a paper check or spend several days waiting for a mobile check deposit to clear.