What Are ACH Transactions? Everything You Need to Know

ACH transactions are a form of electronic payments that go through the Automated Clearing House (ACH) Network. While credit cards, debit cards, and checks are a great mix to provide for your customers, ACH payments give you even more flexibility and potential to increase profits. Here’s a quick guide to what ACH payments are, what they aren’t, and why you might want to add ACH transactions as a payment option for your business.

What Are ACH Transactions?

Think of an ACH transaction as the electronic flow of funds from one bank account to another. These funds travel through the ACH (Automated Clearing House) network, which connects thousands of financial institutions across the nation.

ACH is a fast, secure, and cost-effective way to transfer funds between bank accounts. When a customer pays you through ACH, that electronic funds transfer (EFT) will show up in your bank account as a direct deposit or direct payment.

However, ACH transactions are not the same as debit card payments, eChecks, or wire transfers (we’ll explain why next). And while they are electronic payments, it’s important to understand that not all electronic payments are ACH payments. For example, credit and debit card payments are electronic, but that doesn’t make them ACH transactions. ACH is specific to bank account transfers.

Think of ACH as an electronic version of the paper checkbook, but with several unique advantages. ACH transactions are an easy, modern alternative to cash, paper checks, and even credit or debit card payments.

Learn more about ACH and what does ACH stand for.

How Do ACH Payments Work?

Here’s what happens during the ACH payment process:

Initiating the ACH payment

A customer first has to give you their OK to initiate an ACH transfer. Just as they would sign a paper check or a credit card receipt, they have to sign an ACH authorization form (or verbally agree to it during a recorded phone call). The nice thing about ACH is that customers can agree to set up a one-time payment, a recurring payment, or even a series of payments on specific dates. See our ACH form template here.

Receiving the ACH payment

Once an ACH transfer has been authorized, your bank account will electronically pull the agreed-upon payment from your customer’s bank account. While you previously had to wait anywhere from 3-5 days to receive an ACH payment, new rules are being introduced to allow for same-day processing. The only hiccup you may encounter with ACH payments are “bounced” transfers, due to insufficient funds in your customer’s account. Just as with paper checks, ACH transactions can’t go through unless there is enough money in the payer’s account.

How are ACH payments different from eChecks, debit card transactions, and wire transfers?

While these electronic transactions appear similar on the surface, they are actually processed in very different ways. Here’s what you need to know:

ACH payments vs. eChecks:

You may hear the terms “eCheck” and ACH payment used interchangeably, and it’s true that they both transfer funds electronically between two bank accounts. The difference is that eChecks are one-time EFT payments and ACH transactions depend on customer bank account information that’s stored with the merchant (that’s what makes recurring ACH payments possible). Learn more about eChecks here.

ACH payments vs. debit cards:

Even though both ACH and debit card transactions pull funds from a customer’s bank account, they do so through very different means. What’s most relevant to you as a business owner is that a different partner processes these payments, which means that an ACH transfer will have very different transaction costs and dispute resolution policies. When it comes to ACH fees (as compared to debit or credit card transaction fees), that difference often works out in your favor.

ACH payments vs. wire transfers:

A wire transfer is handled by two individual banks who work directly to verify funds and complete the transaction. If you’ve received a wire transfer in the past, you may have noticed that both the sender’s bank and your bank charged a fee for the transaction—it’s not uncommon to see charges between $10 and $35 per transaction, from both the sending and receiving bank. This reflects the extra work each bank has to do to set up the transfer. ACH transactions, on the other hand, go through the Automated Clearing House, which you can think of as a sort of electronic highway between financial institutions. Instead of two banks having to “build” their own road to move funds between each other, they can simply add them to the flow of payments already moving through the ACH “highway.” ACH batches and automates the flow of payments between financial institutions, which translates to cost savings for you!

Why a Business Should Accept ACH Payments

For businesses, one of the most convenient and cost-effective ways to accept payments is through ACH transactions. ACH transactions come with several benefits for both customers and business owners: they’re fast, flexible, and often less expensive than accepting credit or debit cards. Here are three major benefits:

Lower transaction fees

ACH transactions tend to carry lower fees, which adds up to considerable cost savings over time. For example, if a customer makes an ACH payment through PaySimple, it might cost $0.60 + .1% per transaction. So if they paid you $500, the fee for the transfer would be $1.10. But credit and debit cards come with steeper transaction costs. Rates vary, but let’s assume a $.10 transaction fee + a 1.9% rate. That same $500 would carry a $9.60 fee! The more that you earned, the wider and wider that gap would become.

Convenience and speed

ACH payments mean that you don’t have to trudge to the bank to deposit paper checks anymore. Depending on your business, this benefit can save you time, allowing you to focus more on increasing profits instead of managing them.

Recurring and flexible billing.

The beauty of ACH payments is that you can just set them and forget them! This creates a reliable flow of revenue to your business: you can set up ACH payments on a one-time or recurring basis, or even schedule them for specific dates in the future.

How to Start Accepting ACH Payments

Setting up ACH payments is fairly straightforward. Here are the steps.

1. Open a merchant account with PaySimple. If you’re not sure how merchant accounts work or want to learn more, check out the top questions to ask when opening a merchant account.
2. Ask customers to sign an ACH authorization form. (You can use this simple ACH authorization form template).
3. Have customers submit their checking account and routing number details on the phone or via an online form.
4. Submit or save the payment information in PaySimple. This initiates the ACH transaction.

It’s really that easy! But if you prefer to do a little more research first, we suggest reading about the 7 things to know before you set up ACH billing. And for more detailed insights, be sure to download our free Guide to Accepting ACH & eCheck Payments.

Are ACH payments right for your business? When you’re ready to begin accepting ACH payments, we’ll be here to help!

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