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What Is an ACH Payment? The Ultimate Guide to ACH Transfers

Read Time: 7 min

An ACH payment is a virtual transaction that moves funds from one financial institution to another via the Automated Clearing House electronic network. A participating financial institution is able to accept both credit and debit transfers with this method of payment. If you are familiar with payroll for direct deposit or receive payments via direct deposit, you already understand a little about how an ACH payment works. In fact, direct deposits are common representations of an ACH transfer. But before we go into the specifics of ACH payments, we need to understand what the ACH acronym stands for.

What Does ACH Stand For?

“ACH” stands for “Automated Clearing House,” further clarifying the ACH meaning and definition. While the name suggests that a clearing house is a place, it actually defines a network that links all the financial institutions and banks in the U.S. Therefore, an ACH transfer routes a payment from one financial institution to another through the ACH network.

The National Automated Clearing House Association, also known as NACHA, runs the ACH network in the U.S. Therefore, each ACH transfer is an electronic funds transfer (EFT) that NACHA oversees. Thanks to today’s payment processing software, companies can transfer and withdraw funds quickly and conveniently. Instead of relying on paper checks or cash, you can use one of various EFT options to accept deposits or transfer funds.

How Does ACH Payment Processing Work?

female processing an ach payment using a calculator and laptop

Basically, an ACH payment transfer is one that goes through the NACHA-enforced ACH payment EFT network. It can take several days for this type of transfer to clear. To complete ACH payment processing, you need to know the bank account number and routing ACH number of the receiving end payment accounts.

To understand how ACH transfers work, you must also familiarize yourself with the Originating Depository Financial Institution (commonly called the ODFI) and the Receiving Depository Financial Institution (known as the RDFI). The ODFI represents the financial institution that originates the ACH transfer while the RDFI is the banking institution that receives the ACH-transferred funds.

The Cost of Your ACH Payment

Whether you use ACH credit or debit transfers through your bank, the ACH fees are either exceptionally low or frequently nonexistent. However, some banks will charge fees and have limits for moving your money out of their bank accounts. While you may have to pay a small fee for outgoing transactions, you won’t be charged a fee for money coming into your account. After all, a bank likes to see more money coming into a customer’s account than leaving it.

Accepting Payments Through a Merchant Service Provider

If you accept payments online as a vendor or retail merchant and use a merchant service provider (MSP), you will receive charges for the processing of credit and debit card payments and ACH payments as well.

A merchant service provider retains deposit relationships with different financial institutions to process payments for merchants. In turn, a merchant obtains a signed ACH authorization form from the customer and submits what payments he or she needs to receive through the TPPP. The TPPP generates and deposits the payments into the vendor’s deposit accounts, mainly through ACH debits and credit cards.

ACH Transfer Costs for Payment Processing

Below is a summary of the typical processing costs for ACH transfers, as of 2021.

  • Flat fees per transaction can range from $.20 to $1.50 each. Compare that with about 2.9% per swiped credit card transaction and 20 to 30 cents per transaction.
  • Percentage fees per transaction cover 0.5% to 1.5%, on average.
  • Monthly fees currently stand at $5.00 to $30.00.
  • Batch fees (per batch) are usually under $1.00 each.
  • An ACH return fee is normally between $2.00 to $5.00 per return.
  • If a chargeback or ACH reversal occurs, the typical cost is $5.00 to $25.00 per instance.

Make sure, when using a TPPP, that you understand all the terms and conditions of your contract. You won’t want to be surprised later by a hidden fee. If you are a larger business that has direct access to ACH, you will normally experience lower fees.

How Long Does an ACH Transfer Take?

a mobile ach payment transfer being done using two phones with a laptop

A standard ACH debit takes about 3 to 4 business days to achieve completion after an ACH transfer. The first day represents the initiation of the transfer. Afterward, the Receiving Depository Financial Institution (RDFI) has 48 hours to let the payment processor know about any return codes.

ACH payment processing is not immediate like wire transfers, as the batches processed through ACH transactions run only three times per day and only Monday through Friday. Therefore, the processing time can vary from same-day delivery up to two days.

However, with that said, remember NACHA requires that ACH debit transactions process by the next business day. Nevertheless, after receipt of the money, a financial institution may also hold the transferred funds. Therefore, delivery time varies.

What is an ACH return code?

Hundreds of ACH return codes exist for processing ACH payments. In simple terms, an ACH return code gives a merchant or business a reason why an ACH transfer failed or was not processed.

For instance, if a bank account has nonsufficient funds for a debited bank account, the ODFI will receive an ACH return code R01, which tells them that the bank account did not have enough funds to cover the payment.

ACH Debit vs ACH Credit

To understand how ACH transfers are made, you also need to learn more about the difference between an ACH debit and an ACH credit transfer. The main difference lies in who makes the ACH transfer request.

ACH Debit Transactions

During an ACH debit transaction, the recipient requests funds from a bank or financial institution. After the request, the money is sent. Initiated by the receiver of online payments, ACH debit represents a popular type of ACH transfer.

Some payment processors refer to the transfer as a “pull” transaction, as the recipient “pulls” funds from the payer. Merchants often prefer using an ACH debit transaction over an ACH debit card transfer, as it costs less.

To perform an ACH debit transaction, the recipient provides his or her bank routing ACH number and savings or checking account number to the payer. Therefore, ACH debit transactions are considered less secure than ACH credit transactions.

ACH debit transactions are often used for recurring billing for insurance or utilities. In essence, an ACH debit gives a company the authority to “pull” what a payer owes from his or her bank account. This type of ACH transfer goes faster, as NACHA says that ACH debit transactions must be initiated and completed within 24 hours.

ACH Credit Transactions

During an ACH credit transaction, the bank sends funds after the payer requests the money transfer. Basically, an ACH credit transfer works like an ACH debit transfer, but in reverse.

An ACH credit represents an electronic funds transfer (EFT) from one account to another after the payer gives instructions to its bank. The most common examples of ACH credit transfers include direct deposits that cover paychecks and government benefits, such as Social Security. Instead of “pulling” funds, the payer “pushes” funds into a payee’s account.

You can also facilitate an ACH credit transfer for automatic payment delivery. For instance, as a payer, you can set up automatic bill pay or regular mortgage payments, through electronic funds transfer, with your bank.

Businesses can also opt to pay their state taxes through an ACH credit transfer. While the word “credit” may conjure up images of credit card purchases, you can also use ACH credit transfers to set up automatic payments from your business and personal bank account.

ACH vs Wire vs EFT vs eCheck

While ACH transfers, wire transfers, EFTs, and eChecks may seem similar, it’s important to be able to distinguish the differences among them.

Wire Transfers

Unlike a wire transfer in real-time, an ACH transfer takes several business days to complete. A wire transfer, from one account to another, is facilitated immediately. Therefore, the cost of the transfer is higher, typically between $20 to $30 for the processing fee – quite steeper than the fee for an ACH deposit.


A man writing on a table with a laptop, calculator, and money to figure out what is an ach payment

An ACH transaction represents a type of electronic funds transfer. While an ACH transfer is an EFT, that does not mean an EFT has to be an ACH. Therefore an EFT is a blanket term that describes the following types of transfers, or digital movements of money.

  • Electronic checks or eChecks
  • Phone payments, normally used for utility payments
  • Direct deposits via ACH
  • Credit card or debit card payments and transactions
  • ATM transactions
  • Transactions on websites


Electronic checks or eChecks are different from ACH transactions, as they represent the digital form of a paper check. They are different from ACH transfers. An ACH transfer is a process that moves money from one account to another while an eCheck represents a form of payment.

The Benefits of an ACH Payment

The benefits associated with an ACH transaction primarily concern speed and convenience when compared to paying traditionally, or by paper check. The cost is low and offering the service improves customer relations and sales conversion rates. Users can pay remotely, authorize, and make payments automatically.

The Drawbacks of an ACH Payment

The main drawback of an ACH payment involves the set-up costs and fees per transaction for businesses. Also, an ACH deposit is not always available for immediate use. However, this expense is well worth it, as it costs more to collect non-payments and pay for in-house bookkeeping services.

Is ACH Right for Your Business?

If you wish to provide more payment options for your customers, the cost of using ACH payment processing is worth it. On average, ACH payments cost lower than accepting the standard credit card payments from customers. You can offer both forms of payment processing at a minimal cost to you.

If your business regularly receives customer payments monthly, you should add ACH payment processing to receive ACH deposits into your account. The more payment options you offer your customers, the more money you will make to support your operations.

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