Banking Banking Basics Learn How ACH Payments Work Electronic Payments Replace Check and Card Payments, Save Money By Justin Pritchard Justin Pritchard Facebook Twitter Website Justin Pritchard, CFP, is a fee-only advisor and an expert on personal finance. He covers banking, loans, investing, mortgages, and more for The Balance. He has an MBA from the University of Colorado, and has worked for credit unions and large financial firms, in addition to writing about personal finance for more than two decades. learn about our editorial policies Updated on October 26, 2021 Reviewed by Eric Estevez Reviewed by Eric Estevez Eric is a duly licensed Independent Insurance Broker licensed in Life, Health, Property, and Casualty insurance. He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business. learn about our financial review board In This Article View All In This Article Basics of ACH Why Businesses Like ACH Payments Why Consumers Like Paying With ACH How to Accept ACH Payments From Customers How Much Does It Cost? Personal ACH Payments Same-Day Payments Frequently Asked Questions (FAQs) Photo: Carlina Teteris / Getty Images ACH payments are electronic payments that go through the Automated Clearing House (ACH) Network. 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: Payments are inexpensive, they can be automated, and recordkeeping is often easier with electronic payments. Most people already use ACH payments, although you might not be familiar with the technical jargon. When employers pay wages through direct deposit or consumers pay bills electronically out of checking accounts, the ACH network is often responsible for those payments. Consumers and businesses made over 23 billion ACH payments in 2018, according to Nacha, the Electronic Payments Association behind the ACH network. Basics of ACH © The Balance, 2018 ACH payments are electronic transfers from one bank account to another. Several examples include: A customer pays a service provider. An employer deposits money to an employee's checking account. A consumer transfers funds from one bank to another. A business pays a supplier for products. A taxpayer sends funds to the IRS or local organizations online. To complete payments, the organization requesting a payment (whether they want to send funds or receive funds) needs to get bank account information from the other party involved. For example, an employer needs the following details from employees to set up direct deposit: The name of the bank or credit union receiving fundsThe type of account at that bank (checking or savings)The bank’s ABA routing numberThe recipient’s account number With that information, payments can be created and routed to the correct account. Billers need those same details to make pre-authorized withdrawals from customer accounts. ACH payments are often electronic from start to finish. But sometimes merchants convert paper checks to electronic payments, and the funds move through the ACH system. Benefits All Around Electronic payments are popular for several reasons. Because they’re electronic, ACH payments use fewer resources than traditional paper checks. There’s no need for paper, ink, fuel to transport checks, or time and labor to handle and deposit checks.Electronic transactions make it easy to keep track of income and expenses. With every transaction, banks create an electronic record. Accounting and personal financial management tools can also access that transaction history. Why Businesses Like ACH Payments Note Businesses can benefit from cost savings and improved operations when using electronic payments. Easy to Handle When customers pay by check, businesses need to wait for the mail to arrive, and then they need to deposit the check with a bank. Payments sometimes get lost, and entering those payments into a recordkeeping system is labor-intensive. Electronic payments arrive quickly and reliably, and there’s no need to forward checks to the bank and wait a few days to find out which checks bounced. Less Expensive Than Plastic For businesses that accept payments by credit card, it often costs less to process an ACH transfer than to take a credit card payment. Especially when collecting numerous recurring payments, those savings add. Automating those payments only increases the benefits. However, ACH does not give you a real-time approve/deny response like a credit card terminal would. Long-Distance Payments Businesses can accept payments by ACH remotely, although the same is true for credit cards. If your customers don't have credit cards or they prefer not to provide their card information regularly, ACH can provide a solution. Why Consumers Like Paying With ACH Businesses aren’t the only ones to benefit from ACH payments. Easy Payments There’s no need for consumers to write checks, reorder checks when they run out, and get checks in the mail on time. No charges go onto their credit cards—the funds come directly from their bank account. Autopilot If using automatic ACH payments, customers do not need to keep an eye out for bills—or take action when payments are due. For better or worse, everything runs on autopilot. How to Accept ACH Payments From Customers To accept payments by ACH, you need to partner with a payment processor. You might already have a relationship with one—you're just not using the ACH service yet. Note Numerous payment processors can help you accept ACH payments, so it pays to shop around for one that does what you need exactly. Start by asking your existing service providers if they can enable ACH payments for you, including: The bank where you keep your business accountsThe vendor that processes credit card (or other) payments for you alreadyYour accounting software provider—popular programs allow you to create invoices and accept payments by ACH New payment processors continually enter the market, and they may be a good fit for small businesses that only need to make infrequent ACH payments. For example, Plooto allows you to send or receive payments with a $25 monthly fee that includes ten free transfers. Large businesses might pay less per item for ACH, but that might be competitive if you only have a handful of transactions each month. How Much Does It Cost? ACH is an option for businesses of any size. You'll naturally pay less if you have higher volumes, but the same is true for credit card payments. The average cost for sending and receiving ACH payments are around $0.29 per transaction. For small businesses, service providers might charge more. Some charge per-transaction fees, while others include a monthly fee or take a percentage of each payment. Depending on your average ticket size, those costs might still be competitive with the charges for processing debit card payments. Be sure to look at the big picture when evaluating alternatives: It might not cost anything to accept checks, but what's the tradeoff? Note Dealing with paper checks takes time, and funds probably don't get into your account as quickly. For some businesses, like consultants who only receive one or two checks per month—and for whom cash flow is not an issue—it might be more trouble than it's worth to set up ACH. But others might come out ahead just by creating more time in the day. When you automate payments, you have more capacity for other activities. Personal ACH Payments As an individual, you can send or receive payments via ACH if a business or other organization is on the other side of the transaction. Direct person-to-person ACH payments are hard to establish, but it’s easy to send funds with an intermediary involved. Third-Party Apps Several apps and payment services allow you to send funds to friends and family for free. Those apps provide a front-end to your bank account, and they often use ACH to make deposits and withdrawals for you. Bank Offerings Your bank or credit union may have a P2P payment service that allows you to send money as well. Those services may be bank-branded, or they may be part of Zelle or Popmoney. Unfortunately, it’s not easy for an individual to just punch in somebody else’s bank information and complete a transfer. Depending on the service you use, the person you’re sending to or receiving from may need to open an account with that service provider to complete a payment (or at least provide their bank routing and account numbers to the service provider). Same-Day Payments Traditional ACH payments typically take two to three business days, although weekends and holidays can slow down the process. In today’s on-demand world, that’s too slow, especially for an electronic system. Same-day ACH payments began in 2016, and functionality is expanding, so you should expect to see faster payments soon. Frequently Asked Questions (FAQs) What is an ACH debit? A debit is a charge on your checking or savings account. Unlike credit cards that charge to your line of credit, a debit card draws directly from your bank account. An ACH debit is just another way that there can be a debit on your account. If the money is removed from your account with an ACH transaction, that is an example of an ACH debit. What time of day do ACH transactions post? ACH transactions can process at nearly all hours of the day, but transactions only settle during business hours. All transactions settle on weekday mornings at 8:30 a.m. EST, except same-day payments, which have three additional settlement windows between 8:30 a.m. and 6:30 p.m. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Nacha. "What Is ACH?" Nacha. "ACH Network Moves 23 Billion Payments and $51 Trillion in 2018." Consumer Financial Protection Bureau (CFPB). "What Is an ACH?" FFEIC. "Consumer Compliance FAQ for Check Clearing for the 21st Century Act (Check 21) and the Implementing Regulation (12 CFR 229)." Consumer Financial Protection Bureau (CFPB). "Can I Use the Automated Clearing House (ACH) Network to Transfer Funds Abroad?" Nacha. "Electronic Payments for Consumers." Nacha. "Direct Payment for Consumers." Nacha. "Direct Payment for Small Businesses." Plooto. "Plooto Pricing." Association for Financial Professionals. "2015 AFP Payments Cost Benchmarking Survey." Discover. "What Are Peer-to-Peer Payments?" Nacha. "Payments Mythbusting."