AP Automation

How Do ACH Transfers Work?

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Bella Ward
12 min to read

The world of e-commerce continues to grow as businesses offer more online payment methods. One method that’s gaining popularity is ACH payment. 

It’s a kind of payment routed through the Automated Clearing House, a network that connects most financial institutions in the U.S. If you want to know how ACH transfers work, keep reading.

In this ultimate guide to ACH transfer, we’ll learn what it is, how it works, and how much it costs at different banks.

What is an ACH Transfer? (All About Automated Clearing House)


An ACH transfer is a low-cost, electronic money transfer between banks through an Automated Clearing House. 

ACH is the primary system that manages electronic banking transactions. The network is governed by the US National Automated Clearing House Association (NACHA) and regulated by the federal government. [1]

Businesses use ACH transfers for direct debit and B2B transactions. In fact, you may be using an ACH transfer without even realizing it. Paying your bills online through bank accounts, making single or recurring deposits to IRA, and getting your pay via a direct deposit are examples of ACH transfers.

Types of ACH Transfer

The ACH network processes two types of transactions: 

  1. ACH Direct Deposits or ACH Credit

This type of transfer pays funds into an account. These are transactions that “push” money into the account.

It includes depositing funds into a consumer or employee’s account for payroll, tax refunds, government benefits, etc.

  1. ACH Direct Payments or ACH Debit

ACH debit transactions “pull” funds from an account.

Examples of this are the withdrawal of funds to pay a utility bill, a recurring subscription service (Microsoft Office 365 or Netflix) or another type of bill, sending money to family or friends, and donating to charity.

In 2021, the total dollars transferred via ACH direct payments reached $8.89 trillion. No wonder it has become the most common B2B electronic payment method, surpassing traditional wire and check transfers. [2]

You can set up both ACH transactions by providing your routing and bank account numbers to your payer or biller.

What Is Needed for an ACH Transfer?

You must provide the following information:

1. Name

2. Account number

3. Routing transit/ABA number (nine-digit code)

4. Whether it’s a personal or business bank account

5. Transaction amount

The account nickname is optional, yet other information is not.

So, How Do ACH Transfers Work?

You can compare ACH transfers to digital mail sent in bulk. Every transfer request is sent as a message within an outgoing batch of mail. It is done by the originating depository financial institution (ODFI), the bank requesting the transfer.

Then, the network re-bundles every message into a batch to the receiving depository financial institution (RDFI), the bank receiving the request.

This process happens at five set intervals every business day. 

Here’s a rundown of a typical ACH transfer process:

  • The originating party initiates a debit or credit transfer.
  • The originating financial institution (ODFI) batches the transaction with other ACH transfers. These are then sent out to the ACH network at set intervals. Considering when the request was submitted, the transactions may be sent on the next business day or sent within an hour.
  • The ACH operator (Electronic Payments Network or the Federal Reserve) receives the batch transactions. It will sort the transactions and submit them to the RDFI. (Normally takes one business day).
  • The RDFI processes the transaction. Some receiving banks hold funds for a specific time before depositing the transferred funds to verify that the debited account doesn’t have insufficient funds.
  • The ACH transfer process ends when funds are deposited to the receiving accounts.

It is possible to stop an ACH transfer.

You simply have to contact your bank or billing department (whichever initiated the employees’ paychecks) three business days before the payment date.

How to Make an ACH Payment

Step 1: Provide the Necessary Information

This includes your name, account number, routing/ABA number, transaction amount, and account type.

Step 2: Specify the Type of ACH Transfer

Specify the type of ACH transfer you’ll make, whether it’s an ACH credit or an ACH debit. Both e-payments offer the same level of cost-effectiveness and convenience.

Step 3: Execute the Transfer; Enter the Payment Amount

The next step in the process to successfully complete the ACH payment is to execute the transfer.

Enter the payment amount and payment date. Most banks will allow you to post-date it.

Step 4: Accept ACH Payments 

Source: Pexels

Consider accepting payments from customers if you have a small or large business. To do this, sign up with a payment processing company. They will provide you with the tools to accept electronic fund transfers.

Aside from lower transaction fees, other benefits of ACH transfers are it’s less labor-intensive and cheaper for a business to collect payments via ACH debit. 

What’s needed for a business to accept ACH payments?

Businesses can accept ACH payments online, by mail or phone, or at the point of sale (POS). But first, the company has to work with a payment processor that provides the service.

It also has to ensure that the bank or financial institution where their business account is can work with that processor to accept the transfer. Their accounting software and point of sale must also be compatible with the process.

If you plan to accept payments through mail or telephone, your business needs a virtual terminal. For online payments, you only have to ensure your software accepts ACH. Unlike debit or credit card payments, customers must enter their banking routing and checking account numbers on the checkout page with online ACH payments.

In addition, it’s necessary to have clear customer terms and conditions. Information should include cancellation notices and frequency of payment.

ACH vs. Wire Transfer: The Main Differences


The key differences between ACH and wire transfers are cost and speed.

ACH transfers are generally cheaper than wire transfers. ACH transaction ranges between $25 to $30 for transfers within the US and between $45 to $50 for transfers outside the US.

Wire transfers typically reach $35 to $50. International outgoing wire transfer fees cost more than domestic wire transfer fees.

As to the transaction speed, wire transfers take a shorter time to complete (within a day) than ACH transfers (three to five business days).

ACH Transfer vs. Debit and Credit Card Transactions

ACH transfers work the same as debit and credit card transactions because funds are drawn from a savings or checking account.

However, they don’t use card networks. This means they are not subject to the same fees required when processing a debit or credit card transaction.

Main Benefits of ACH Transfers

  • Lower costs. They cost significantly less than credit cards. 
  • Convenience. They create a less administrative hassle. There are fewer trips to the bank and fewer paper invoices.
  • Fewer Disputes. There are fewer disputes with ACH transfers than with debit and credit card transactions. Customers can typically only dispute ACH payments for fraud, duplicate transaction amounts, or incorrect amounts.
  • Environmentaly-friendly. Electronic checks issued reduce the use of both fuels to transport checks and the use of ink. The process can help businesses look for ways to lessen their environmental footprint.
  • Secure. They touch fewer hands during processing, meaning less chance of being left out in an unsecured area or lost, as can happen in paper checks. The AFP Payments Fraud and Control Survey showed that paper checks is the payment method subjected to the most fraud (66%) in 2021, followed by wire transfers (39%). [3]

With ACH transfers, bank account data is encrypted and stored in a secured system.

Limitations of ACH Transfers

ACH transfers have some drawbacks. These include the following:

  • Transfer limits. Some financial institutions impose per-transaction, daily, weekly, or monthly limits on the amount of money sent. Check the policies provided by your bank account for this kind of transfer.
  • No international payments. International money transfers need other payment methods, such as wire transfers. ACH payments can be deposited only into US-based bank accounts.
  • Processing times. Transfers are processed in batches and may take one to three business days to reflect in the recipient's bank account. That’s longer than wire transfers, ATM transactions, and credit card transactions.
  • Associated fees. They are not completely free for businesses. You’re charged a per-transaction fee ($ .000185 to $1 minimum) or an annual fee ($264) to join the network.

NACHA requires adherence to the transaction rules. It may decline an electronic payment if you fail to supply the important ACH instructions.


How Do You Cancel an ACH Transfer?

You can reverse a payment that has been posted under these specific conditions:

  • The account number was incorrect.
  • The amount transferred or paid was incorrect.  
  • The ACH transfer was made more than once/duplicate transactions. 

Reversals of ACH payments must be done within five business days from the transaction.

How Long Do ACH Payments Take To Process?

Payments normally take three to five business days. However, as demand for faster transactions grew and technology advanced, NACHA started same-day payments in 2016. 

Now, employers can select two-day, next-day, or same-day payments. The processing time, however, does not include national holidays and weekends. 

It depends on your bank’s policies if they allow same-day processing. It’s best to contact your bank for more details.

Why aren’t ACH transfers instant?

ACH transfers are not instantaneous. They are processed in batches throughout the day or three to five business days to complete the whole process.

The receiving bank also needs time if it chooses to hold the funds before releasing them.

The Bottom Line

ACH transfers can make life easier for the recipient and the sender. 

No longer will you need to write a check and wait for it to be cleared (successfully processed). You also don’t have to go in person to the electronic company to pay your bills before the due date.

Although all these are possible, ACH transfers enable you to send and receive money securely and conveniently without leaving your home.

At Payvy, we provide a complete product selection that makes managing accounts payable simple and efficient.


[1] https://www.fiscal.treasury.gov/ach/

[2] https://www.nacha.org/

[3] https://www.jpmorgan.com/

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