What is an Automated Clearing House payment?

ACH payments (Automated Clearing House Payments) electronic funds-transfer system operated by NACHA (National Automated Clearing House Association). ACH payment system offers ACH transactions for use along with payroll, direct deposit, tax refunds, consumer bills, tax payments, and other payment services throughout the U.S. ACH payments are budget-friendly and time-saving methods for carrying out now off payments.  

Understanding ACH 

ACH is an electronic network connecting more than 25,000 banks and other financial institutions throughout the U.S. The first ACH was BACS in the U.K. that began processing payments in 1968. ACH enables the electronic transfer of funds across accounts and carrying out payments in a simple and quick manner. ACH payments basically fall under two categories: 

Direct deposits: It comprises all sorts of deposit payments of businesses, government, and consumers. It includes payroll, government benefits, tax and other refunds, employee expense reimbursement, annuities and interest payments. 

Direct payments: These payments include the use of funds to make payments.  

Different type of ACH transfers 

ACH transfers are of two types-  

  • ACH credits 
  • ACH debits 

Under ACH credits, funds are pushed into an account. And under ACH debits, funds are pulled out of an account. 

Understanding ACH number 

For authorizing an ACH debit transaction, the account holder has to provide authorization in writing, give their checking bank account, and also the ACH number. The ACH number is a nine-digit number that is needed for authorizing electronic payments, which is the same as your checking account number that you can check on the checkbook to the left of your account number. There are few banks that have different ACH numbers that begin with digits between 61 and 72.  

Pros of ACH payments 

Using ACH payments, you can simply automate your payment process, which helps in saving time and costs involved otherwise. It is a fast and convenient method for transferring funds between accounts. Unlike debit card transactions, ACH payments turn out to be a budget-friendly method for merchants. Other benefits of going for ACH payments include: 

Affordable: ACH payments aren’t routed via the relatively expensive card networks; ACH payments turn out to be an affordable approach to transfer funds electronically. 

Higher retention: As credit and debit cards expire, it leads to involuntary churn. In the case of ACH payments, a bank account is the source of funds and further minimizes the risk of involuntary churn. 

Accessibility: Every individual who has a U.S. bank account can make payments via the ACH scheme and includes consumers and businesses. 

How long does it take to process? 

ACH debit is not at all an instant payment method and payments usually take over three working days to reflect in the bank account. Moreover, when you submit the ACH file to your bank, the time of the day must also be taken care of. There are probable chances of numerous reasons for failure that might take longer processing times. 

Are ACH payments secure? 

ACH debits need people to hand over checking account and routing numbers and have to offer these details once for setting up automatic payments. ACH payments are comparatively secure than making bill payments by check that reveals the bank information every month. Moreover, there is no risk of payments getting stolen or lost. ACH credits are a safer approach for one-off payments as compared to wire transfers. 

What is the difference between ACH & Wire Transfer?

The adoption of consumer electronic payments has elevated rapidly in recent times. Individuals and businesses no more prefer cash payments and are switching to non-cash payments, which seems to be a far better and secure approach. And out of the most popular and preferred electronic payment methods, Automated Clearing House (ACH) transfer and wire transfers continue to receive global adoption and usage for carrying out electronic payments by the majority of the people around the globe. 

Though both the payment methods are safe and efficient and facilitate the electronic transfer of funds, there are many notable differences that everyone must be aware of before making a choice between the two. So, let’s discover the major differences between ACH transfers and wire transfers. 

What is ACH & Wire Transfer? 

ACH is an electronic network that enables fund transfers between over 25,000 banks and financial institutions. An ACH payment takes place when money from one financial institution is moved to another, where the ACH payment moves across a national network and enables a clearinghouse for processing. 

A wire transfer is a type of electronic payment that takes place between two banks. Wire transfers are carried out instantly as they need not process via a clearinghouse. Wire transfers don’t need the ACH as a middleman since banks carry out these transfers instantly and funds are transferred electronically from one account to the other. People need wire transfers in case of large dollars purchase like buying a home or paying off a particular loan. 

Differences between ACH & Wire Transfer 

There are notable differences between ACH & Wire Transfer in terms of costs, speed, security, and applications. 

COSTS: When it comes to ACH transfer, sending money from person-to-person is free for the recipient and the receiver usually has to pay $1 per payment. While wire transfers are expensive, banks and credit unions charge around $35 to send domestic wire transfers. In the case of international wire transfers, charges are even higher. 

SPEED: ACH transfers take time as compared to wire transfers. With wire transfers, funds are received in the recipient’s bank account within one business day and there is no hold on money, which implies recipients can withdraw the amount instantly. Major parts of the payments are automated, but there can be delays due to human involvement in authorizing the funds. In the case of international wire transfers, it will take longer as compared to domestic transfers. 

On the other hand, ACH transfers usually take two to three business days to process since banks carry out ACH payments in batches instead of handling them individually. However, improvements are being made continually and there are some ACH transfers that are processed on the same day itself. 

SECURITY: Unlike wire transfers, ACH transfers are considered safer as in case an error or a fraudulent transaction occurs, a transfer reversal is requested. However, wire transfers are riskier since reversals don’t occur in these transfers, which accompanies risk for the senders. 

APPLICATIONS: ACH and wire transfers have a different set of uses. ACH transfers are commonly used by businesses that have to pay employee wages. It is even useful for recurring bills and one-off payments. These transfers tend to have less processing fees, so it turns out to be an affordable option. 

Wire transfers are rapid and are ideal for making a down payment on a property purchase and accompanying other benefits. 

Wish to learn more about ACH and wire transfers? Connect with the expert team at TERA and learn which the ideal choice is for you!