How Does ACH Payment Processing Work?

How ACH Payment Processing Works

When you transfer money to another account, do you ever wonder how it works? How you can just specify the account number and the routing number, and transactions will push through? But what actually happens behind the scenes?

The Automatic Clearing House (ACH) payment processing does just that. It’s a central house that automatically processes and clears bank-to-bank transactions in the United States, in batches.

Then the next questions that you will have in mind as someone who wants to use it but is not yet familiar with ACH payment processing are: How does ACH payment processing work? What will it mean to me especially if I have customers abroad?

For an ACH transaction to go through, you will need to know the terms of the one who initiates the transaction called the Originator, and the one who receives it, the Receiver.

With over 75.1M same-day ACH payments processed in 2017, and 15.2M transactions from December alone, ACH payment processing acquired a huge 51% increase as compared to November’s record.

Financial institutions, businesses, and consumers are reaping the benefits of Same Day ACH processing. Same Day ACH processing is now a reality for payroll, bills payment, business-to-business (B2B) payments, account transfers, and many other applications.

Planning to add ACH processing services? Let’s discuss everything that you need to know about ACH payment processing.

What is ACH Payment Processing?

ACH payments are electronic payments that go through the Automated Clearing House (ACH) Network.

It is an electronic network for financial transactions in the United States that processes large volumes of credit and debit card transactions in batches. ACH payment is a tool that electronically debits a customer’s bank account instead of using paper checks.

Funds move from one bank account to another with the help of a centralized system that directs funds to their final destination. These computerized payments can provide benefits to both merchants and consumers in the means of payments being inexpensive, they can be automated, and recordkeeping is often easier with electronic payments.

What are the benefits of ACH payment processing?

For customers

  1. It’s a one-time setting method

In ACH debits, you don’t have to keep going back to update your credit or debit card details. Once the mandate has been set, money will automatically be debited from your bank account on a regular basis. All you have to do is ensure that your bank account has sufficient balance consistently so you won’t have to keep an eye on your payment deadlines.

  1. Security at its finest

Rest assured that you’re protected in the events of payment errors where you get a no-questions-asked refund within 8 weeks after the money has been debited. Also, you can enjoy the benefit of demanding a chargeback for up to 13 months after the settlement of funds. You will also be notified in advance if the merchant modifies the date or amount and can also cancel a mandate anytime.

  1. It’s cost-effective

Paying via ACH is usually free, banks may charge a very meager fee for bank-to-bank transfers. You’ll be charged anywhere around $10 to $30 by banks to send a wire transfer within the US, and above $40 for international transactions.

ACH payment processing for businesses

  1. Minimizes scope of electronic payment failures

Every year, about $40 billion is lost because of online transactions getting blocked for unwarranted red flags. And it inadvertently leads to a negative customer experience leading to around 31% of them blaming the merchant when their credit card processing is declined.

  1. It won’t break your bank

Third-party ACH processors will charge flat rates of anywhere around $1 or 1% per transaction. Comparing it with credit card payments, it would typically cost about 3% per transaction on top of the monthly fees for a merchant account. All that said, ACH payments are far more economical.

  1. You are more in control

In ACH debit transactions, your ACH processor will ensure that the pre-defined funds automatically land in your account on the pre-defined date especially in the absence of any disputes. You can set recurring as well as one-off payments and manage all of them in one place.

  1. It’s more transaction efficient

Thanks to NACHA’s rollout of the new Same Day ACH, the final phase has been implemented since March 16, 2018. Now, ACH transactions amounting to $25,000 and below will be processed on the same day, thus making it all the more convenient.

(Note: Transactions above $25,000 and international transfers aren’t eligible for Same Day ACH. A few banks might charge an additional fee for ACH payment processing the same day. To qualify for Same Day ACH debits, you should also pay attention to the preset cutoff times.)

How do I get ACH payment processing?

You can access ACH Payment Processing and all of its benefits through a payment processor. Payment processors facilitate the actual payment and deposit the money directly into your account. Using ACH Payment Processing, instead of traditional credit card processing, lowers your overall processing costs.

ACH payment processing for small businesses

ACH Payment Processing can help your small business with quick and secure electronic payment processing. ACH payments are used to move funds from one bank account to another. The funds move expediently through the ACH Network, with the funds deposited into the receiving bank account within a few business days. ACH moves funds without needing to use a physical check, credit card, or debit card.

ACH Payment Processing for small businesses is particularly helpful for paying recurring bills. Direct Payment through ACH can help customers pay for services. They can pay through ACH Credit or ACH Debit. ACH Credit pushes the funds to an account, while ACH Debit debits the account. A customer would use ACH Debit for recurring bills they want to put on autopay. ACH Credit on the other hand can be utilized for making one-time payments.


About 73% of online consumers believe that the payment type accepted by a business does affect their decision to buy from that business.

So, it goes without saying, that it’s important that you offer more alternative payment methods to please your customers. Happy customers always lead to larger sales.

Comments are closed.