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Your Complete Guide to ACH [Automated Clearing House]

Mar 21, 2022 | ACH 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.

You’ve already made payments and transfers using ACH.


To begin, you must have paid your bills online or had your paychecks deposited directly into your bank account. These are only two examples of how ACH functions.

Hundreds of billions of dollars pass through the Automated Clearing House daily in a complex but elegant manner. The institution in charge of these transfers and payments is Nacha (formerly known as National Automated Clearing House Association). The ACH Network processed 26.8 billion payments in 2020, marking the sixth year in a row that it added more than 1 billion more transactions. These payments totaled $61.9 trillion in total value.

Usually, banks charge you $3 for ACH. But – Powered by Zil Money offers you free ACH transfers, whether one-time or recurring. You can pay or receive money through ACH transfers anytime – anywhere.

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What Is ACH?

Automated Clearing House (ACH) is a system in the United States for conducting financial transactions electronically. Simply put, it is a way to transfer money online. It processes transfer requests in batches, typically 3 in a single business day.

Automated Clearing House (ACH) Transfers and Payments

ACH transfers are direct bank-to-bank money transfers that are processed electronically through the ACH network. ACH transfers are also sometimes called ACH payments. Two US organizations made ACH transfers possible for you:

The Clearing House & The US Federal Reserve

The Clearing House is owned by the largest commercial banks in the United States. As its name suggests, it is responsible for the clearing part of payment systems, such as wire transfers, ACH, and Real-Time Payments using the RTP network. The Clearing House uses EPN or Electronic Payment Network to efficiently handle ACH transfers. It alone is responsible for successfully conducting half of the US commercial ACH operations. The US Federal Reserve banks handle the rest of the ACH transfers.

How Much Do ACH Payments Cost?

ACH debit payments such as payroll direct transfer and bill payments are typically free. However, the bank might charge you extra for the early settlement of a bill. ACH credit transfers incur a fee of around $3-$5 for sending them to an account of a different bank. There are no fees to receive ACH funds. Person-to-person payments that you initiate through third-party apps, such as PayPal, can cost a small fee, depending on the platform and payment method.

How Long It Takes to Process Your Payment

Usually, the settlement of ACH transactions can take more than one business day. In contrast to the real-time processing of wire transfers, ACH transfers are processed only seven times a day by the bank. Banks also offer to clear the credit request on the same day or the next business day. In contrast, banks have to process debit transactions by the next day. These timelines are based on rules from the Nacha for the convenience of the customers and the public. Your bank might also hold the payment for some time. So the overall time to clear transfers and for the funds to reflect on the account varies from bank to bank.

Nacha also has provided for the same-day settlement of the ACH transfer without any additional fee. But it depends on your bank if it charges extra for clearing them on the same day.

What Are the Types of ACH Transactions?

  • Direct Deposit and Direct Payment (ACH)

Deposits initiated by the payer are Direct Deposits. The most common examples are your employer electronically transferring your salary into your checking or saving account, social security transfers from the government, and tax returns.

Direct payments, on the other hand, are requested by the business and approved by you. Automatic payment of recurring phone bills is an example of direct deposit where you authorize a telecom operator to get money against monthly bills directly from your account.

  • ACH credit transfers (push payments) and ACH debit transfers (pull payments)

A credit transfer is one where the funds are pushed into the bank account. For instance, you are paying your phone bill online. Here, you are pushing the funds into the bank account of your telephone service provider from your account.

On the contrary, a debit transfer involves pulling funds from the bank account. Let’s say you agree on paying your recurring insurance bills automatically. Here, you are authenticating your Insurer to pull money directly from your bank account and deposit it into the insurance company account. This is a type of ACH debit transfer.

  • Same-Day ACH Transfer

Nacha has adopted a new rule to introduce same-day ACH in a phased manner. This provision will allow a same-day settlement of ACH transactions, affecting the existing transfers. All types of payments are eligible for same-day ACH processing, except for transactions exceeding $25,000 and international transactions.

How Do ACH Transactions Work?

Let’s try to understand the ACH process with the help of an example:

  1. You gave your bank details such as account number and routing number to your employer’s company.
  2. While giving salaries, the company will send an ACH request to its bank.
  3. Bank will then process the request and convert it into a file containing details such as Payee Bank details and the amount and payor bank details
  4. This file will go to either the federal bank or The Clearing House for processing in batches.
  5. Your bank will receive the file and after processing it, credit your account with the salary.

All other ACH transfers follow the same process for transferring money between the banks.

What Are the Differences Between Wire Transfers and ACH?

While both of them are types of electronic payment, Wire transfers allow making international payments. Meanwhile, ACH transfers offer only to move money within the US. Other important distinctions between the two are

Parameters ACH Transfer Wire Transfer
Speed 2-3 Business Days Instant
Payment Options Bank Transfer Only Bank Transfer, Debit & Credit Cards
Cost Free or Minimal Processing Fee Never Free. Fees Always Charged
Risk Secure, Reversible Very Difficult to Reverse

Benefits of ACH System

Firstly let’s see how ACH payment benefits both your business and its customers.

  • ACH Offers Greater Convenience

ACH is convenient both to your business and its customers. Customers don’t have to carry cash or their checkbooks everywhere to pay. Checks also have a process of their own. Filling out the check, put it in the envelope, post it, and if the transaction somehow failed, your customer has to start over again.

Even for your business, you have to make the trip to the bank, wait for days to get checks cleared, and maintain a proper record of a check payment is very tedious. ACH transfers funds electronically. So you don’t have to go through all the hassle of dealing with a physical check. ACH also offers to automatically set up recurring payments, which is again highly convenient.

  • More Secure Transactions with ACH

ACH clears funds in batches through the Clearing House and Federal Reserve. The system is automated and highly secured. So the chances of any manipulation are not possible between the clearing process. And Since funds clear in batches, it’s possible to cancel or reverse the transaction.

As per the AFP Payments Fraud And Control Survey 2021, Paper Checks are the most vulnerable payment method subject to fraud. And rightly so:

A check can get lost in the mailing process. Multiple individuals handle checks throughout the mailing and checking process (with the account number and the routing number readily available in a check).

  • ACH Offers More Speed.

Suppose you have to pay immediately to a vendor, or you might lose a very good deal. It is impractical to carry loads of cash everywhere. And there’s a limit over how much you can pay through debit and credit cards. A check will result in at least two working days for clearing. That’s why ACH is the most preferred method of payment involving huge funds. It doesn’t go through the process of mailing and transportation. ACH gets cleared in batches electronically. So the processing time is very fast. And with the same-day ACH facility, there’s also an option to transfer funds within the same day.

  • Reduces Errors and Omissions

With the physical handling of payments, such as checks or cash, there are always risks of human mistakes. Your employee might miscount the number of dollars. They may forget to post the check or misplace it. Another common mistake is forgetting to post about the fund’s transfer in the books.

ACH eliminates the need for counting and unnecessary trips to the bank. And it can get automatically recorded under most of the bookkeeping software. So your accounts remain up-to-date even if your employee forgot to record the transaction.

  • Least Expensive Payment Method

You already know that debit and credit card has the most processing fees, as fees are calculated as the percent of the transaction. Checks cost less, but their transportation and handling make them more expensive. ACH debit payments are typically free such as Payroll Direct Transfer and Bill payments. However, the bank might charge you extra for the early settlement of a bill. ACH credit transfers incur a nominal fee of around $3-$5 for sending them to an account of a different bank. There are no fees to receive ACH funds. Some platforms, such as Online Check Writer, offer ACH transactions for free.

  • ACH Offers Greater Customer Satisfaction

ACH is relatively easy than traditional paper checks. Some people don’t feel confident about sharing their credit cards or other personal details online. And writing a series of numbers over and over again can be unnecessarily complicated sometimes. Your customers can also save a recurring payment. This means they can automatically pay their bills through ACH. They won’t have to worry about meeting deadlines and remembering all the due payments dates.

Thus ACH provides a more secure and easy payment option to your customers.

How ACH Fares Against Other Payment Methods?

ACH Vs. Electronic Fund Transfers (EFT)

EFT or Electronic Fund Transfers are electronic transfers of funds between bank accounts. EFTs can include ACH and Wire Transfer services and other forms of digital payment. EFT is an umbrella term that covers ACH, eCheck, RTP, and some Point Of Sale Transactions. Thus, ACH is a type of EFT transfer.

ACH Vs. Real-Time Payments

RTP or real-time payments are the payments that can settle instantly. The Clearing House developed the RTP network. This network is online 24 x 7 x 365 to settle transfers. While the facility of same-day ACH provides faster settlement of transactions, it is still not instant. Furthermore, ACH only operates on business days. At the same time, the RTP network operates even on weekends and holidays.

ACH Vs. Third-party payment processors (TPPPs)

They are a subtype of ACH processors. They provide payment processing services to merchant or business clients. TPPPs are processed through RTP and ACH. They offer both debit and credit processing facilities. They take advantage of economies of scale by grouping a large number of transactions.

ACH Vs. Digital Wallet

A digital wallet is a software or online service that enables individuals or businesses to make or receive payments electronically via the internet. It allows your customers to complete purchases quickly by allowing them to pay at the ‘point of sale,’ i.e., directly at your store or website. Simply put, digital wallets aim to replace the existing physical system of cash transactions with the digital, online version of wallets.

Digital Wallet offers a limited number of transactions. Its maximum value is also smaller than that of ACH.


After going through all the benefits, it is safe to say ACH adds great value to your business. It is the norm of business nowadays. You should consider the ACH payment system as it will greatly improve customer satisfaction and ease your business working.

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