A Comprehensive Guide to ACH Payments for Businesses 

ACH (Automated Clearing House) transactions are fundamental to modern payments, enabling the electronic transfer of funds between bank accounts. These transactions can be classified into two main categories:

• ACH Credit: Also known as “push” payments, this is the type of ACH credit initiated by the payer. Funds move directly from the payer’s account at an ODFI, or Origination Depository Financial Institution, to the receiver’s account at an RDFI, or Receiving Depository Financial Institution. Examples include direct deposit of payroll or recurring bill payments.

• ACH Debit: Although ACH debits are also referred to as “pull” payments because it is the receiver who initiates a pull and pulls money out of the payer’s account with his or her consent, such as to pay utility bills, in this scenario, the payer’s bank and routing number is provided to the receiver and pulled when applicable.

The ACH network has grown to an unbelievable size in the last few decades and has become an integral part of the financial system, with billions of transactions processed annually. Understanding how ACH works and its benefits to businesses will enable businesses to make better decisions about their payment process.

 

What is an ACH Payment?

An ACH payment is an electronic transfer of funds from one bank to another through the Automated Clearing House network, a safe and efficient way of processing large volumes of transactions in batches. This includes initiations for payroll, bill payments, vendor disbursements, and tax refunds, among other services.

Key Elements of ACH Payments

• Cost Effective: ACH Payments are cost effective compared to credit card transactions and wire transfers. It hence becomes useful for businesses that undertake a huge volume of payments.

• Batch Processing: ACH payments are batched in so that large volumes can be made in bulk at one time.

• Flexibility: ACH payments are good for one-time and recurring transactions, so they can effectively be used in payroll to vendor payments, etc.

ACH in Modern Finance 

The ACH network cleared 8.3 billion payments valued at $21.6 trillion in Q2 2024. In total, for all of the year 2023, the network settled 31.45 billion payments valued at $80.1 trillion. This steady growth in ACH payments highlights their significance. 

Growth: 

• Over the period 2014-2023, volumes have been observed to increase at a CAGR of 5.57% while values were upgraded at a CAGR of 7.18%. 

• B2B payments: In 2023, 6.59 billion payments were processed, worth $54.20 trillion. 

• Direct Deposits: Over 8.29 billion direct deposits were made, amounting to $14.68 trillion. 

• Same Day ACH: Introduced in 2016, Same Day ACH has grown rapidly. In 2023, 853.43 million payments were processed, totaling $2.43 trillion. 

 

What is the Automated Clearing House (ACH) Network? 

The ACH network is the backbone of ACH payments, which possess safe as well as efficient transactions between financial institutions. NACHA’s stricter rules have paved the way for wide application in carrying out domestic transactions in the United States. 

 

How ACH Differs from Other Payment Systems: 

• ACH vs. EFT: The term EFT is a broad term that covers all forms of electronic payments, including card payments and wire transfers, except for the ACH this method was especially developed for high-volume batch-processing type payments. 

• ACH vs. Wire Transfers: ACH payments are much lower cost, but the processing time is much slower, usually 1-2 days whereas wire transfers are much faster, same day, and significantly higher in fee, between $15-$50 per transaction. 

Key Data: 

• Volume and Value: In 2023, the ACH network processed 31.45 billion payments worth $80.1 trillion. 

• Cost-Effectiveness: ACH payments are known for their low transaction fees, typically just a few cents, compared to other methods like wire transfers or card payments. 

• Processing Time: Standard ACH payments take 1-2 business days to process, while Same Day ACH allows for faster processing, though still limited to specific processing windows. 

 

Types of ACH payments 

Payments through ACH are further categorized into two primary types, depending on the mode of fund transfer: 

ACH Credit (Push Payments)

A payment is started by the payer; therefore, a push directive to credit the customer’s account. 

For example- Direct payroll deposits, Vendor payments, and Income tax refunds. 

Key Benefits: Companies maintain control over who settles, and, in most cases, this is easily manageable for high-volume settlement activities, including payables release. 

ACH Debit (Pull Payments)

Pull transaction A type of pulling transaction initiated by the recipient, drawing funds from the payer’s account. 

For example: Credit card payments, mortgage payments, and subscription services. 

Key Benefits: Convenient for recurring payments, but the payer relinquishes control over the timing of the payment. 

 

Common Uses of ACH Payments  

ACH payments have become indispensable for both businesses and consumers, enabling various types of transactions: 

• B2B Payments: ACH makes vendor payments simple. This means remittances to suppliers and other service providers can be done without using the pricey wire transfer. 

• Direct Deposits for Payroll: This is the transfer of funds from the account of the employer to the account of the employee via payroll direct deposit. 

• Bill Payments: ACH Debit is widely used for recurring payments, whether it is utilities, mortgage, or subscription services. 

• Government Payments: Federal and state governments use ACH to disburse Social Security benefits, tax returns, and other unemployment benefits directly to recipients. 

 

How Do ACH Payments Work? 

The ACH payment process can be summarized in the following way: 

• Initiation: The payer initiates a payment request to their bank known as ODFI, which includes the recipient’s bank account and routing number. 

• Batching: The ODFI aggregates the entries and transmits the batch to an ACH operator could be the Federal Reserve. 

• Clearing and Settlement: The ACH operator sends payments for settlement. This means the funds are transferred between the financial institutions. 

• Final Deposit: The RDFI accepts the credit to the recipient’s account. 

• Processing Time: Whereas an ACH payment is typically executed within 1-2 business days, the Same Day ACH cycle reduces the cut-off window cycle to make it a better option for immediate rather than time-sensitive payments. 

 

How much does an ACH payment cost? 

Its fee is also one of the lowest among the businesses’ offered payment options. The cost of ACH payments varies between $0.20 and 1.50, depending on the number of payments and the payment processor. This is relatively lower than that of credit card transactions ranging between 1.5% to 3% of the amount of transaction, while it is higher than that for wire transfer, which costs from $15 to $50 per transfer. 

 

Benefits of ACH Payments 

1. Cost-Effective: Another advantage is that ACH payments have significantly lower fees compared to credit cards and wire transfers, while suitable for high-volume and recurring transactions, such as payroll and vendor payments. 

2. Higher Transaction Success Rate: Of course, ACH has fewer returned or failed payments than most other payment methods, which further reduces the administrative burden on businesses. 

3. Safety: ACH refers to transactions governed strictly under rules and encryption, hence guaranteeing safety and a sound fund transfer. 

4. Smoothness: ACH payments have minimal effort to configure and automate, hence best deployed in repeat disbursements like payroll and bills. 

5. Flexibility: This means ACH can accommodate a wide array of transaction types-ranging from small monthly subscriptions to large business-to-business payments. 

6. Fewer Errors: Automated processes reduce manual input errors, improving accuracy and minimizing costly mistakes. 

 

Challenges by ACH Payments 

Although ACH payments were associated with various benefits, these were not without some drawbacks: 

• Processing Times: Generally, ACH transfers take 1-2 business days; however, this may be too long for a same-day transaction. 
• International Usage is Limited: Since ACH is primarily a domestic U.S. payment system, most cross-border payments tend to get transmitted through wire or otherwise. 
• Risk of reversals: a debit transaction made via ACH can be reversed if unauthorized, leading to disputes between the payer and the payee. 

 

ACH Payments vs. Wire Transfers 

When comparing ACH payments to wire transfers, the following distinctions are important:  

• Cost: ACH costs are much cheaper than wire transfers, which can cost anywhere between $15-$50 per transaction. 
• Best for same-day transactions: Where the available transfers are done on the same day of the transaction and ACH will take 1-2 days. 

ACH is best suited for routine, scheduled payments, while wire transfers are used for urgent, high-value transfers such as real estate transactions or large business deals. 

 

ACH Payments vs. EFTs (Electronic Funds Transfers) 

ACH payments are a subset of the broader Electronic Funds Transfer (EFT) category, which includes: 

• Wire Transfers: Faster but more expensive. 
• Credit Card Payments: Common for consumer transactions but come with higher fees. 
• Bank Transfers: These can include both ACH and wire transfers. 

 

How to Set Up ACH Payments for Your Business 

To enable ACH payments for your business, follow these steps: 

1. Verify ACH Capability with Your Bank: Ensure that your business banking account is set up to send and receive ACH payments. 
2. Update Software: Make sure your payment processor or accounting software supports ACH transactions. 
3. Integrate ACH Payments into Your Workflow: Add ACH as a payment option for customers and vendors, streamlining your payment processes. 

 

The Future of ACH Payments 

The ACH network continues to improve, including developments around Same Day ACH improvements and concepts for a global ACH network that will enable cross-border transactions. Continued security enhancements keep fraudsters at bay further from businesses. 

 

How does Zenwork Payments impact ACH processing? 

What matters most in facilitating ACH payment management simplification is the offering of automated disbursements with compliance management and vendor onboarding. All these happen to ensure that, via the Zenwork Payments platform, businesses can establish ACH payments quickly and process them safely. 

 

Conclusion 

ACH payments provide businesses with a reliable, secure, and cost-effective method of handling transactions. Whether you are managing payroll, paying vendors, or automating recurring payments, ACH is a powerful tool that can streamline your payment operations. With Zenwork Payments, businesses can further enhance their payment processes, making ACH transactions even easier to manage.