ACH Payment: What Is ACH Payment and How Do You Use It?

Nicole Georgiev
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    As a DTC or B2B business owner, you likely rely on making and receiving eCommerce payments with vendors and other entities, especially during seasonality in business. Those payments come through via an eCheck or the Automated Clearing House (ACH) network, and in 2020 alone, more than $61 trillion passed through the ACH network in different financial transactions.

    If you aren’t already using ACH for your payments and transactions, then you may want to consider moving toward this type of system, especially as eCommerce trends show many prefer contactless payment after the COVID-19 pandemic. Most also prefer to get payments sooner instead of waiting on a check to come in the mail. 

    Learn more about ACH payments, recurring payments, how they work, the PCI, and the steps you need to take to acquire revenue through payment processing companies.


    ACH Payment Meaning

    This type of payment is not anything new. ACH payments have been around since the 1970s. They are coordinated by NACHA, which stands for National Automated Clearing House Association, also referred to as the ACH scheme or ACH network. ACH payments are used by businesses, consumers, government, and more to help complete transactions across the country.

    What Does ACH Payment Mean

    To define ACH payment, think of it in this way: you’re essentially creating an automated electronic check that transmits funds from one bank account to the other. Another way to think of an ACH payment definition is that it’s a transfer or a transaction. These payments can only be made in the United States, so they won’t work in other countries. ACH payment means that they are processed by the Automated Clearing House. If you stick the best bank for online transactions, you’ll have no trouble making and receiving ACH payments.

    How Does ACH Payment Work

    When you make an ACH payment, it comes straight from your bank account and goes into the other party's bank account. No debit cards, credit cards, or payment gateway providers are involved in the process. You can also receive payments from other businesses, which is helpful when you’re looking to set up B2B payments. Businesses use ACH payments for a number of things, such as:

    • Paying employees via direct deposit
    • Automated monthly bill payments
    • Subscription billing
    • Shifting money to different accounts
    • Making match contributions to employee 401Ks or HSAs
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    ACH Payment vs. Wire

    An ACH payment is not the only way to electronically transfer money from a bank account. You can also use wire transfers, which are a slightly different option. There are a few main differences when you examine ACH payments vs. wire transfers, which include:

    • Wire transfers can appear in the recipient’s account on the same business day, while ACH payments can take 1-2 business days to process.
    • Wire transfers typically cannot be reversed but ACH payments can be if needed.
    • There is usually a fee to send a wire transfer, whereas ACH payments are almost always free to send and process. 
    • Both can typically be initiated online, but wire transfers may include some additional steps to be properly verified by your bank.

    Generally, wire transfers are used when you need to move money quickly, as a one-time payment. If you need to set up a system for more frequent payments, though, then ACH payments may be your best bet since there are generally no fees associated with those. 

    ACH Payment Processing

    It is important to remember that making an ACH payment is not a rapid or instant process. Instead, there are steps that financial institutions follow in order to ensure that payments are processed properly. Payments are usually processed three times a day, so the time you submit is important as well. Make sure you know your bank’s cutoff times for processing each day. The FAQs below can help you further understand how does ACH payment work and if it's the best payment gateway for your business.

    How Does ACH Payment Processing Work?

    First, you submit the ACH file to your bank. They will process it and send it to the ACH network. The next day, the payment goes to your vendor or customer’s bank. They’ll take the file and then debit the account. Sometimes, there are failures and those are sent back to the ACH network, which then communicates that to your bank. Reasons that payments can fail include insufficient funds, incorrect formats, or incorrect payment details.

    ACH Payment Processing Time

    How long ACH payments take to process depends on a few factors: how long your bank takes to process your file, if the file is correct, if you have the right funds in your account, and what time you submit your payment during the day. Typically, they’ll be ready in about three business days. There are some options available for same-day processing, but not all banks offer this. These types of payments also have a processing fee and a limit of $25,000 per transaction. 

    How to Accept ACH Payments

    If you’re wondering how to accept payments online or how to receive ACH payments, it’s fairly simple. You just need to provide the sender with a routing number and bank account so they know where to send the payment. 

    Make sure accepting these payments will be the right move for you by taking a hard look at your systems. For example, do you have a lot of vendors who request paper checks? Or do any of your customers feel uncomfortable using an online payment system? Do you operate on a net 30 payment plan? If so, then taking ACH payment could be beneficial for your company.

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    How to Make an ACH Payment

    To make an ACH payment, you will need your bank routing number and account number. Many businesses have online payment portals set up already, so you’ll just create a secure login and then enter that information. You can set it up easily this way and then you’ll be able to send ACH payments. Learn how to send ACH payments to other businesses or individuals.

    ACH Payment Method

    Paying via ACH requires a bank account on both ends of the payment. You need one for the funds to come from, and one that the funds go into to complete the payment. There is no other method to make ACH payments, so if you are exploring this option, ensure that you have a bank account with sufficient funds. 

    How to Set Up ACH Payments

    Setting up an ACH payment is a fairly straightforward process. You need to go into the online payment portal and input your bank account and routing number, as well as how much you want to pay. Some businesses also allow you to set up automatic withdrawals which can be helpful in avoiding late fees. You’ll just need to be sure that your account has sufficient funds each month so that the payment does not fail or you end up with overdraft fees. These payments can also be ideal for a pre order payment.

    ACH Payment Form

    In some cases, you can also fill out an ACH payment authorization form. This is similar to a direct deposit form that employees fill out in order to get paid, except in this case you’re submitting your information to make a payment to someone. Many times, these can be submitted electronically via a secure system.

    How to Stop ACH Payments

    Reversing an ACH payment can really only happen for a few reasons: either the amount was wrong, an account number was entered incorrectly, or if it was a duplicate transaction. Keep this in mind if you realize you need to stop an ACH payment, as you’ll need to act on this a few business days before it is scheduled to come out of your account. Here is how to stop ACH payments from your checking account:

    • Contact the company in writing or by phone and revoke authorization to withdraw payment. Let your bank know as well.
    • Notify your bank to stop payment, but they’ll need three business days’ notice for this. There may be additional fees involved as well.

    Always make sure to contact everyone involved in the process of an ACH transfer if you need to stop it before it happens, so that you are covered and that your bank and the other entity are informed of the situation. To manage your finances and accounts effectively, consider using a Direct to Consumer (DTC) or B2B wholesale eCommerce solution that can keep up with everything for you. Find out more about the B2B meaning.

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    Pay Them All

    All types of eCommerce businesses can benefit from using ACH payments. Whether paying your own bills like overhead expenses or receiving payments, it’s a convenient and easy-to-use payment method. The information above can help you understand payment gateway vs. payment processor.

    All payment information and details regarding the payments your company accepts should be listed in your privacy policy and eCommerce terms conditions. A website privacy policy can protect your business and your customers. You can use a privacy policy generator to create one.

    Frequently Asked Questions About ACH Payments

    How does ACH payment processing work?

    ACH payment processing works by sorting out the entries in two categories - deposits and payments. Then an ACH operator will send the entries to the recipient's bank. After this, the bank will have to confirm that there are enough funds in the originator's account in order to allow the transaction. It's an eCommerce marketing and DTC marketing tactic that many businesses utilize for the digital catalog.

    How to make an ACH payment?

    To make an ACH payment, you'll need to do the following:

    1. Collect the necessary information in order to complete the ACH payment
    2. Pick between ACH Credit or ACH Debit
    3. Complete the ACH transfer
    4. Prepare to accept ACH payments from your customers

    Do ACH payments post immediately?

    Most banks and financial institutions have the option to choose whether they have the ACH credits both processed and delivered the same day or within 1-2 business days. However, ACH debit transactions are required to be processed by the following business day.

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