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How ACH Payment Processing Works?

Jun 28, 2021 | Check Printing Software powered by Zil Money is a financial technology company, not a bank or an FDIC member. offers banking services through partnership with FDIC member banks Silicon Valley Bank and Texas National Bank.

If you look for one of the most groundbreaking methods of payment in the United States that fits in well with today’s instant-access world, undoubtedly it is backed by Automatic Clearing House payment, commonly referred to as ACH payment. The good news is, it is a sort of electronic payment which has many benefits because of relatively less transactional cost and helps to meet the needs of the customers.

Another factor that gives it an edge is that the ACH payment processing works take place within a predicted time. It is important to know that a huge number of ACH transactions get processed every year in the United States and it is facilitated by the ‘Automatic Clearing Houses otherwise known as the ACH network which is used by financial institutions in the United States.

Experts opine that twice the amount of the GDP of the USA is moved through ACH payment processing methods and hence the statistics point out the fact that it is a powerful network of transactions. If this is the case, how does ACH Payment processing works? Let’s explain.

Generally, during any professional or personal transaction, ACH plays a significant role. While you pay your employees, the moment you withdraw funds from your bank account, when your house loan gets debited from your account, ACH promises to be a major role player. In fact, everyone who withdraws or pushes funds is a part of ACH payment without knowing the meaning of this jargon. There are two types of transactions that are done through the ACH payment method. One is the ACH debit process and the other one is the ACH credit process.

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How can we explain the ACH debit process and ACH credit process simply

How can we explain the ACH debit process and the ACH credit process simply?

To start on, the ACH debit process is the withdrawal of funds from a bank account right away and is the safest and fastest method. While a customer of a car loan set up his account for automatic withdrawal of the monthly loan amount, it is one perfect instance of the ACH debit process. Once the customer provides his bank account details and also the authorization to withdraw funds from the account each month, the lender bank creates an ACH entry while the payment is due. Further to this process, the amount is debited from the bank account of the account holder every month as long as the account holds enough cash balance.

Further, the ACH credit process is also used very commonly, especially by employers and merchants. While an employer makes a deposit to an employee’s payroll, the bank account number of the employee is collected and the amount is ‘pushed’ or credited to the employee’s account. If taken individually, ACH debit is when money gets deducted from your bank account, while ACH credit is when money gets deposited into your account. Since the merchants need a smooth method of transaction, ACH has become more popular in the US and it is not limited to business days.

How does the ACH payment process work while crediting and debiting transactions

How does the ACH payment process work while crediting and debiting transactions?

In the case of an ACH credit transaction, this is also known as a ‘push’ transaction, the payer initiates the funds and the particular amount is pushed to the receiving party’s account. ACH debit transaction is a sort of ‘pull’ transaction which is initiated by the receiver and the fund is withdrawn from an account. No matter which way it is transacted, both the transaction types explained above, an originator introduces the ACH transaction into the ACH payment system.

As the next step, the originator delivers the ACH transaction to the corresponding operator. The operator will be either the Federal Reserve or will be the Electronic Payment Network. Correspondingly two banks are involved in these transactions. One is Originating Financial Depository Institution (ODFI) if the transaction is a push one and the ODFI will also debit its customer’s account before forwarding the transaction to the ACH operator.

Subsequently, the ACH operator carries out a switch function, thereby forwarding the transaction to the Receiving Financial Depository Institution (RDFI). In the case of a ‘pull’ transaction, the RDFI upon receipt will debit its customer’s account. In a scenario where the ODFI and the RDFI are using different ACH operators, the former operator immediately switches the transactions to the second operator.

Every day, the net settlement totals of their banks are calculated by the ACH operators for their corresponding banks, and the same is submitted to the Federal Reserve. The Federal Reserve manages the process of actual settlement, followed by this; both the ODFI and RDFI credit its particular customer’s account according to the transaction type and spending pattern.

An example of how ACH payment processing works in debits and credits

An example of how ACH payment processing works in debits and credits?

As a real-life example, if Smith is an employee of a company called XYZ and he provides his employer the banking information in order to receive direct deposit of his paycheck. In this case, an ACH transfer is initiated by the XYZ Company to send the same amount of money to Smith. The ACH entry is sent to the bank by the XYZ Company to debit its bank account. Further, the entry is forwarded to the ACH operator. Later, the ACH operator passes the entry to Smith’s bank account and it gets credited after the settlement from the fed. This can be cited as a perfect example for a credit transaction which can also be called a ‘push’ transaction.

Now, in this case, if Smith wants to pay his electricity bill and for this purpose, he has already given his utility company all his banking details and authorization. This authorizes the bank to pull the electricity bill from Smith’s bank automatically. In this case, the utility company sends the ACH entry to its bank which forwards the entry to its ACH operator. As the next step, the ACH operator passes the entry to Smith’s account and the amount gets debited from Smith’s bank account. Thus an ACH debit transaction takes place upon a single click.

How much ACH payment costs and is this mode inexpensive comparatively

How much ACH payment costs and is this mode inexpensive comparatively?

While we take a look at the details, this especially holds true that Ach payment is a good option for business houses of any turnover. It guarantees to lessen your transaction expenses as the volume of payment increases. The average cost for sending and receiving ACH payments varies around $0.30 according to experts. In the case of small business houses, the service providers might charge more than this. This is all done based on each transaction or monthly and it acts as a typical check, electronically. It is the best way to adapt to the changing transaction scenario.

However, more valuable will be – Powered by Zil Money which provides you a method of ACH payments without any processing fee. You can switch to e-checks and can pay or receive payments over email checks in a matter of minutes. It involves no charges and consists of automated approval. Watching closely, the process is really simple. You can send or receive payment checks by email plus the payee can take a check print using any printer. These checks can be cashed on the requirement.

Overall, it can be set up for one-time payment, recurring payments like rent or can be kept open. Frankly, The all-in-one payment solution is an amazing way of paying and getting paid without any transaction fee. There is one notable aspect to this as any number of payments can be done without any limits. It helps people in the United States to possess organized financial transactions and helps to get work done fastly.

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