How many times have you received your salary through direct deposit, paid your mortgage or utility bills on autopilot, or made the supplier’s payment without using a check? If you have, then you are already familiar with ACH. An Automated Clearing House (ACH) transfer is a safe and effective way for business owners and consumers to move money between accounts.
In this guide, we’ll explain what an ACH transfer is, how it works, and its cost.
What Are ACH Transfers?
ACH transfers are the transfer of funds using the ACH Network from one account at a financial institution to another. These include receiving your pay through direct deposits or paying bills through your bank account.
The ACH transfer also makes single or recurring deposits to an individual retirement account (IRA), a college savings account, or a taxable brokerage account. Nowadays, businesses utilize ACH to pay and receive payments from their clients.
How Do ACH Transfers Work?
ACH transfers are controlled by the Automated Clearing House Network, which is a hub connecting many banks across the country.
Let’s understand the step-by-step process of how to initiate an ACH payment and how an ACH transfer works.
- Step 1: Get the customer’s bank account details, or if you are the vendor, you have to provide the bank information to the client. You have to get your bank account number and routing number; then, the transactions are performed using a third-party application such as Cheqly.
- Step 2: Enter the amount you want to transfer.
- Step 3: You can schedule the payment or pay as early as possible.
- Step 4: As you are using a platform as a payer, you have to pay an amount to use the application, and there are no transaction fees.
- Step 5: ACH transfers are only possible during bank business hours. While you perform your transactions, you will get an expected date for your successful transaction.
Therefore, this is the step-by-step process of making money transactions using an ACH transfer.
Types of ACH transfers
ACH transfers help make online transfers safe and secure through highly secure banking networks. Using ACH transfers, money can be sent and received easily.
ACH networks have two types of ACH Transfers, which are as follows:
ACH Credit or ACH Direct Deposit
In this procedure, money is electronically transferred from a company or governmental body to the customer. With ACH Direct Deposit, you can receive money.
Some examples of ACH Direct Deposit
- Government Benefits
- Tax Refunds
- Paychecks
- Interest Payments
- Employer-Reimbursed Expenses
- Annuity Payments
ACH Debit or ACH Direct Payments
By using electronic financial transfers, individuals, companies, and other entities can transmit money. We will refer to your online bill payment as an ACH Direct Payment.
The sender typically starts the ACH direct-payment transaction by giving the receiver the required bank information. The sender then provides the recipient’s information and the payment amount to their bank. The Automated Clearing House (ACH), which handles the payment processing, receives the data from the bank and forwards it.
Some examples of ACH Direct Payments
- Bill Payments
- Mortgage Payments
- Subscription Services
- Gym Memberships
- Insurance Premiums
What Is Needed for an ACH Transfer?
A business may take ACH payments at the point of sale (POS), online, over the phone, or through the mail. A company must ensure that its POS and accounting software is compliant with the transfer process if it wishes to accept ACH payments.
Originator’s Details
- Name
- Bank account number
- Routing number
- Account type (checking/savings)
Recipient’s Details
- Name
- Bank account number
- Routing number
- Account type (checking/savings)
- Amount to be transferred.
Authorization – It can be written, electronic, or voiced.
Type of Transfer – One-time or recurring.
Transfer Date – If scheduled in advance.
How Long Do ACH Transfers Take?
NACHA, which is The National Automated Clearing House Association, governs the rules and standards for the Automated Clearing House (ACH) network in the United States.
Although ACH offers the Same-day service, it usually has a higher price for the payer and takes one to two working days longer to process.
- Same-Day ACH – Transactions can settle on the same business day if submitted by the morning cutoff time. Otherwise, they settle the next business day.
- Traditional ACH – Debits settle within one business day. Credits settle in one to two business days.
- Weekends/Holidays – ACH operates only on business days. Transactions initiated on weekends or holidays are processed the next business day.
- Issues – Transactions with errors can be returned, adding to processing time.
- Bank Policies – Individual banks may have their own timelines for making funds available.
What does an ACH transfer fee cost?
The banks and the type of transaction determine the transfer fee.
- ACH Credit Transfer Cost: Banks can charge a fee of around $3 for transferring money between accounts at different banks, but many banks often provide what is commonly known as external fund transfers without any charge. In most cases, there is no fee for receiving these.
- ACH Debit Transfer Cost: These include payroll direct deposits and bill payments, typically free. There are fees only if the bill payments are expedited.
Benefits of ACH Transfers
Using ACH has so many benefits. Let’s have a look at them:
- Lower Transaction Costs – ACH payments are often cheaper than other payment methods, such as credit and debit cards. This makes them useful to firms that need to keep expenses down.
- Security – The Federal Reserve backs the ACH payments, which is why they are secure and protect them from fraud and identity theft. The ACH network is very heavily regulated, and only approved parties are permitted access. As a result, sending and receiving funds are safe and secure.
- Convenience – An ACH payment on a particular date may automatically debit a customer’s bank account. This simplifies the payment procedure and enables businesses to efficiently and promptly receive payments.
- Recurring Billing – ACH enables the capability of recurring billing. Customers’ ability to trace their payments and businesses’ ability to manage their money are both facilitated by this. Businesses can have recurring payment plans with clients using ACH. Further, the payments are taken out of the customer’s bank account on a regular basis. Customers will not have to write or check mail every month, which will save time and effort. Also, it lessens the chance of late payments and eliminates the requirement for businesses to process payments manually.
- Lower Disputes – Compared to ACH, credit and debit cards have higher non-payment rates. This increases the effectiveness of ACH transfers. Thus, it enables you to send and receive payments with lower non-payment rates.
- Environment Friendly – Companies don’t have to spend time or money processing paper checks because ACH transfers do it for them. When electronic checks are printed, ink and gasoline are used in the check delivery process. Thus, having none of them will lessen the environmental impact of the business.
Downsides to ACH Transfers
- ACH Transfer Limits – Banks may set monthly, weekly, or daily limits on the number of transactions that can be processed. Prior to initiating an ACH transfer, it is imperative to understand the transaction restrictions.
- Time Zone Differences – Because banks may be moving money across two time zones, it’s crucial to submit your transfer before a deadline so that the banks can process it for the following business day.
- Penalty – The savings account is governed by Federal Reserve Regulation D, which may place limitations on withdrawal and transfer amounts. Multiple ACH transfers from savings to another bank that exceed the limit may result in an excess withdrawal fee.
Wire Transfers vs. ACH: Key Differences
It’s easy to think ACH transactions and wire transactions are the same, but they actually have important differences. Let’s find out how they differ.
| Characteristic | ACH Transfer | Wire Transfer |
|---|---|---|
| Speed | Takes 1-3 business days | Usually completed within a few minutes to hours |
| Cost | Usually free | Typically $20 to $30 per transfer |
| Availability | Usually only available in the U.S. | Can be used for both domestic and international transfers |
| Safety | More secure and can be reverted | Lower security and not able to be reversed |
| Transaction type | Paying bills, employee wages, moving money between accounts | Often used for urgent international payments |
How do small business owners accept ACH Payments?
- Merchant Account – Open a merchant account with a bank or payment processor that offers ACH payment services.
- Payment Gateway – Integrate a payment gateway on your website or use a virtual terminal for phone orders.
- Collect Information – Gather the customer’s bank account number, routing number, and authorization (written, electronic, or verbal).
- Submit Payment – Use the payment gateway or virtual terminal to initiate the ACH transfer.
- Wait for Settlement – ACH payments typically settle in 1-2 business days.
Common Types of Businesses That Accept ACH Payments
- Subscription services (e.g., magazines, streaming services)
- Utility companies (electricity, water, internet)
- Property management (rent payments)
- Online retailers
- B2B companies (for invoices)
Experience Effortless Domestic and International Money Transactions with Cheqly!
In today’s fast-paced world, seamless financial transactions are no longer a luxury but a necessity with Cheqly – the ultimate neobank designed to redefine your banking experience. Whether you’re sending money across the street or the globe, Cheqly ensures every transaction is effortless.
One of the standout features of Cheqly is its affordable and transparent pricing system. Using Cheqly, you can enjoy affordable fees for domestic ACH transfers in the US. There are no hidden charges or complicated terms. It’s banking made simpler, faster, and more affordable.
Join Cheqly now and enter a world where financial transactions are truly effortless. Dive into the future of banking, where every domestic or international transaction is just a click away. With Cheqly, your financial world is boundless.