The Automated Clearing House (ACH) payment system has had a tremendous impact on the payment processing industry. The unique system transfers money between banks through the ACH network, which makes it convenient and cost-effective to send or receive money. Though there are some drawbacks to using ACH transfers, this method of money transfer is appropriate for a majority of companies and people.
If this is your first time learning about the ACH transfer system, you likely have a lot of questions. In this article, we will answer some of the most common questions business owners have about ACH transfer. By taking the time to understand how this innovative payment system works, you can decide if it makes sense for you.
What is an ACH Transfer?
Automated Clearing House transfers are direct transfers, or flows, of funds from one financial institution to another. Currently, thousands of financial institutions are part of a broader, national clearing house network. So long as the financial institutions of both the payer (making the payment) and payee (receiving the payment) are a part of this network — as you’ll find with almost every major bank — ACH transfers are possible.
What Do You Need for an ACH Transfer?
The info needed for an ACH transfer is minimal. You simply need to know the account and routing number of the account you’re using to send money. You can find the account and routing numbers at the bottom left corner of a check, or you can find the information through your bank’s web portal or mobile app.
Once all information has been provided, an ACH transfer — which will appear in a bank statement as an electronic funds transfer (ETF) — can be initiated. Usually, the transferred funds will be accessible in a few business days. In some cases, depending on payment processing systems and the institutions involved, the money can appear on the very same day.
Do ACH Transfers Cost Money?
ACH transfers can cost money, but the amount is negligible and nowhere near the cost of a wire transfer, which can cost as much as $30. ACH fees can cost between $0.20 to $1.50 per transaction, or, in some cases, between 0.5% and 1.5% of the transaction. For companies that send many ACH transfers, there may be a batch fee or monthly fee that could potentially provide some savings.
How Long Does Bank Transfer Take With ACH?
After you set up an ACH transfer, you might want to start making transfers, but it’s worth noting that they’re not instantaneous. ACH transfer times can vary depending on several factors, but generally, ACH transfers take between 1 to 3 business days to process. Here’s a breakdown of the typical timeline:
- Standard ACH Transfers: Usually take 1 to 3 business days. If you initiate the transfer early in the day, it might be completed by the next business day. However, if initiated later in the day, ACH processing time might take up to 3 business days.
- Same-Day ACH Transfers: Some financial institutions offer same-day ACH transfers, which can be completed on the same business day if initiated by a certain cutoff time, often around noon.
- Weekends and Holidays: ACH transfers are processed only on business days, so weekends and holidays can add extra time to the transfer process.
It’s always a good idea to check with your bank or the service provider for specific details and timelines related to their ACH transfer processing. This list of banks that accept ACH transfers is a good resource.
How Do ACH Transfers Work?
Two main steps are involved in completing an ACH transfer: initiating and receiving the payment. In the initiation phase, the payer must receive clearance from the payee, along with signed ACH transfer forms (recorded verbal agreements may also be allowed). Once the payer has gained approval, they can initiate the payment, and their bank will direct the funds to be approved through the broader clearance house. The way these payments are distributed (recurring, one-time, or time-specific) can be customized as needed.
Following the authorization of the initial transaction, the payee will then be ready to receive the payment. Once this step in the process begins, funds will be pulled from the payer’s account and transferred to the payee’s account. The amount of time it takes for an ACH transfer to be completed can vary; some institutions offer same-day transfers, but in other cases, the transfer can take as long as five business days.
What Are the Different Types of ACH Transfers?
To be clear, a wire transfer is not the same as an ACH transfer. However, ACH transfers can be categorized in two ways: ACH credit payments and ACH debit payments. Oftentimes, these payments are referred to as push payments and pull payments, respectively.
With an ACH credit payment, the person initiating the transaction will be the payer. In other words, the person intending to make the payment will push the payment out of their account and into the authorized receiving account.
In other cases, however, the ACH transfer will be initiated by the party on the receiving end of the transaction (payee). When this occurs, the receiver (who has received prior authorization) can summon the amount due, as needed. These sorts of payments are ideal for recurring expenses, such as utility bills, mortgages, and others. If you notice unauthorized funds have been pulled from your account, contact your financial institution immediately.
What Are the Benefits and Drawbacks of Using ACH Transfers?
According to the Federal Reserve, “ACH payments are estimated to have been 5.6 billion by number, with a value of $12.90 trillion in 2018.” The use of ACH payment processing solutions has been steadily increasing, growing at a rate of about 7 percent per year.
Naturally, there are many benefits of choosing to use ACH transfers:
- Affordability: ACH payments are typically more affordable than credit and debit cards. While issuing paper checks is relatively low-cost as well, it does involve more time and more effort.
- Security: ACH transfers, especially with payment processing firms like Smart Payables, are the most secure method for making payments. According to PNC Bank, these payments are the least susceptible to both attempted and actual fraud.
- Efficiency: with options such as recurring or pre-planned payments, faster processing times, and various automated features, ACH payment processing gives payees and payers an option that is both fast and accurate.
Furthermore, at least one survey of bank users indicated that about half of all people prefer ACH transfer to other payment options. However, there are some drawbacks, including:
- Slow Processing Times: ACH transactions can take several business days to process. This can be a significant inconvenience for time-sensitive payments.
- Cut-off Times and Banking Days: ACH transfers are subject to cut-off times. Transactions initiated after the cut-off time on a business day, on weekends, or on holidays will be processed on the next business day, further delaying the transfer.
- Limits on Transactions: Some banks and credit unions limit the amount of money that can be transferred via ACH in a single transaction or within a certain time frame.
- Insufficient Funds: If the sender’s account does not have enough funds to cover the ACH transfer, the transaction may be rejected, potentially leading to fees and delays.
- Fraud and Unauthorized Transactions: ACH fraud can occur if someone gains unauthorized access to your bank account information and initiates transactions without your permission. While there are protections in place, it can take time to resolve these issues.
- Limited International Use: ACH is primarily a U.S.-based network. Other methods, such as wire transfers or international payment services, are typically used for international transfers, which may involve higher fees or additional requirements.
- Reversal Difficulties: Once an ACH transfer has been initiated, it can be difficult to stop or reverse it, especially after it has been fully processed. This can be problematic if the transfer was made in error or if a dispute arises between the payer and payee.
- Dependency on Banking Hours: Despite being an electronic system, ACH processing is still dependent on traditional banking hours and days. This means that transactions initiated late in the day, over the weekend, or during holidays will face delays.
- No Real-time Processing: Unlike some newer payment technologies that offer real-time or near-real-time processing, ACH transfers do not settle transactions immediately. This can be a drawback in situations where immediate settlement is preferred.
Ultimately, offering ACH transfers is beneficial for both payers and payees. These payment processing systems have continued to become more popular, widespread, and improved over time. With new technologies and institutional options becoming available every year, having a consistent and reliable infrastructure such as ACH transfer can be extremely valuable.
Automate ACH Transfers With SmartPayables
ACH transfers help businesses and other organizations or individuals distribute funds to where they need to be. By investing in better payment processing solutions, your business can improve its operational excellence and, ultimately, improve its bottom line.
Interested in learning more about ACH payments and direct deposit automation? Please, feel free to contact the Smart Payables team. We’ll gladly answer any questions you might have and help you learn more about processing.
Founded in 2005, Smart Payables offers a full range of accounts payable payment solutions including outsourced check printing and mailing, document and statement printing and mailing, ACH direct deposits + more. Our highly experienced software developers and intelligent printing teams specialize in secure, enterprise-grade payment options that are HIPAA, SOC 1 Type 2, and ISO compliant. Our mission is to help businesses and large organizations implement secure, innovative technology that will reduce overhead and improve business operations and capabilities.