All Learning | What is an Automated Clearing House payment?

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What is an Automated Clearing House payment?

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Praveen Sudha

February 9, 2021
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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. 

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