What Are ACH Payments? How Do They Work?

Looking for a payment method with widespread popularity, minimal fees, and extensive security? ACH payments might be the answer. Learn more in this article.

Shoppers and merchants alike love ACH payments, which is why they’ve consistently increased in popularity over the last decade. Nowadays, there are more than 25 billion ACH payments each year. A bank-to-bank transfer of funds might seem old-fashioned, but this payment method is efficient, secure, and affordable.

Still, if you don’t have hands-on experience with ACH transfers, you might be hesitant to accept them as a form of payment for your business. In this article, we’ll get detailed about what ACH payments really are and how they work so you can make the best decision for you.


What Are ACH Payments?

ACH payments are the electronic transfer of funds from one bank account to another. There’s no need to use paper checks, cash, wire transfers, or credit card networks. Instead, these payments rely on the ACH (Automated Clearing House) network.

Banks and financial institutions can use the ACH network as a batch processing system for bank-to-bank transfers. The ACH has two different operators: The Electronic Payment Network (EPN) and the Federal Reserve’s ACH (FedACH). You may have seen these names tied to your own ACH payments. 

You’ve likely encountered an ACH payment, even if you didn’t realize it at the time. Direct deposit payments and online bill payments commonly use ACH transfers, unless you choose to pay by credit card. You can use ACH payments for all kinds of transactions, like adding money to a college savings account, paying vendors, or receiving payments from customers.

How Do ACH Payments Work?

When a customer chooses to pay with an ACH transfer, they enter their bank account and routing number into your payment system. Then, the payment processor sends a data file to the customer’s bank, which is also known as the originating bank. 

From there, the originating bank sends the file to the ACH operator, which processes it and then sends it on to your bank, also known as the receiving bank. Your bank processes the ACH file, then deposits the funds into your account.

This can work in the reverse direction, too. For example, let’s say you offer a subscription service and your customer has signed up for monthly automatic payments. 

In this case, your bank will initiate the transaction each month and is therefore the originating bank. It sends a request in the form of a data file to the ACH operator, which processes the file and sends it to the customer’s bank, which is the receiving bank in this scenario. It makes sure there are enough funds available, then processes the transaction and deposits the money into your merchant bank account.

It’s important to highlight that the ACH network processes payments in batches. That means the ACH network does not process transactions in real-time, so it can take a few business days for payments to go through. 

What Payments Types Are Best Suited to ACH?

You can use ACH transfers for all types of payments - there are no restrictions. However, they’re generally best for automatic bill payments. ACH payments are similar to the use of a check since it transfers funds from one bank account to another. For this reason, ACH payments are commonly used when paying for utilities or mortgages.

That said, ACH payments are also becoming increasingly popular for monthly subscription services, like Netflix or Spotify. A customer can enter their bank information just once, then never worry about remembering to pay the bill or running out of product. As a merchant, that means guaranteed monthly sales. 

Still, it’s important to note that ACH payments are useful with just about any kind of online payment, even one-off transactions. Some customers may even prefer them if they don’t have a credit card or digital wallet.

The Benefits of ACH Payments

ACH payments offer a variety of notable benefits for both business owners and customers. 

Affordable Fees

For merchants, the most exciting benefit is likely how affordable ACH payments are. They have the lowest processing fees of all payment methods. Fees vary but are usually no more than a few dollars. It all depends on your processor as well as the transaction volume and size. 

Some ACH processors just charge a flat rate of $0.25 to $0.75 for each transaction. Other processors charge a percentage fee, so you pay 0.5% to 1% of each transaction. In comparison, credit cards charge 2% to 4% of the transaction size. 

Plus, ACH payments are usually subject to fewer chargeback fees. Customers have a smaller window (90 days) to dispute an ACH payment compared to credit card payments (120 days). Customers can only initiate a chargeback in a few cases: 

  • The payment wasn’t authorized
  • The transaction was for a different amount than authorized
  • The transaction processed earlier than it should have

Popular Among All Customer Segments

ACH transfers are convenient for merchants and customers, so many people prefer them. In 2021, there were nearly 14 billion consumer bill payments using ACH transfers, amounting to $8.89 billion dollars. 

They’re also common in business-to-business and person-to-person transactions. In fact, there were 29.11 billion payments in total in 2021. By accepting ACH transfers, you let your customers pay on their terms. 

Extensive Security Measures

ACH payments must follow NACHA (National Automated Clearing House Association) guidelines, which require the use of encryption whenever there’s a transmission of banking information. This process turns sensitive information into code, preventing any unauthorized use.

Plus, NACHA requires that all parties involved implement controls and processes to protect sensitive information. That means that businesses and third-party processors each have security measures in place. 

Repeatable for Recurring Bills

Setting up a recurring transfer with ACH payments is easy. Once set up, your payment system automates the entire process. You and your customer don’t need to spend any time or effort on it. Plus, you won’t have to chase down any late payments.

Paper-Free and Convenient

ACH payments allow you to avoid paper checks. This saves you the time and hassle of bringing physical payment to the bank.

Fewer Declines

It’s true that customers can set up recurring payments with credit and debit cards, too. However, these payment methods have expiration dates, which means that you can run into declined transactions when you hit that date. Meanwhile, checking accounts linked to ACH transfers have no expiration date, so you don’t deal with this issue.

The Drawbacks of ACH Payments

Like any other payment method, there are some cons to consider before accepting ACH payments. Here are the most important.

Not the Fastest

Banks and financial institutions can choose to have the ACH process transactions within the same business day. Or, they can opt for one to two business day processing. While this sounds relatively fast, the receiving bank may choose to hold the funds for a short period, which means the entire process can take three to five business days.

Transfer Limits

There are daily and monthly limits for ACH transfers, though you likely won’t encounter them unless you’re dealing with large amounts of money. NACHA has a per-transaction dollar limit of $100,000 for same-day ACH transactions. However, some banks also set their own limits.

Geographic Limits

The ACH is a US-only financial network. Banks can’t offer ACH transfers to any international accounts.

Cutoff Times

The ACH has set cut-off times. If you submit a payment request after 2:45 PM ET, the ACH won’t process it until the following business day. That could leave you waiting all weekend if it’s a Friday.

The Best Way to Accept ACH Payments 

Ready to save money on fees with ACH payments? Make the switch to Pay.com. You can easily start accepting ACH payments - all you have to do is toggle ACH payments “on” from the user-friendly Pay Dashboard. There are no special accounts necessary. Plus, if you decide this payment method isn’t for you, you can turn it off just as easily. 

Likewise, you can accept a wide variety of payment methods, including credit cards, debit cards, and digital wallets. You’ll also get access to our full-service payment infrastructure. Easily get set up by customizing one of our prebuilt checkout pages. Or, use our developer-friendly APIs to add hosted payment fields to your website or app.

We take care of all payment-related security for you, so you can focus on your growing business. We maintain Level 1 PCI DSS compliance, meaning we use industry-standard security measures. That includes multi-factor authentication and tokenization to protect sensitive information and stop fraudulent transactions in their tracks.

Click here to create your Pay.com account now!

The Bottom Line

Ultimately, the payment methods your business accepts will depend on the products you sell and the preferences of your customers. If you sell a subscription-based product and appreciate affordable low fees, ACH payments could be right for you. Although there are drawbacks, they’re fairly minimal and it’s unlikely that they'll impact your business. 

Chances are, your customers already love ACH payments for their ease and security. Give them the opportunity to pay how they want to by using Pay.com as your payment service provider. Easily offer a variety of payment methods, including ACH transfers, and take advantage of Pay.com’s robust payment solution.

Click here to get started with Pay.com now!


How can my online business accept multiple payment methods?

You can start accepting multiple payment methods today with Pay.com. After a fast setup process, you can easily select from a variety of payment methods, including credit and debit cards, ACH payments, digital wallets, and more.

What is an example of an ACH payment?

Let’s say you have a monthly electric bill. When you pay the bill, you can choose to pay via ACH transfer. The electric company will ask for your bank account number and routing number. You can choose to pay just once or set up automatic payments. From there, the electric company’s bank will initiate a payment by sending the request to the ACH network.

Does ACH work with any bank?

ACH works with all banks in the US. However, international banks are not part of the ACH network and therefore cannot take part in ACH payments.

What is the difference between a bank transfer and ACH?

Bank transfers refer to any movement of funds from one bank account to another. ACH transfers are a type of bank transfer that goes through the ACH network. Other types of bank transfers include direct debits and wire transfers.

Meet the author
Ginny Dorn
Ginny Dorn is a finance and business copywriter specializing in credit card processing and fintech. She graduated from Western Illinois University with a bachelor's degree in family and consumer sciences.
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