Last editedApr 20233 min read
In this article, we will cover:
The two types of ACH transactions
ACH credit and debit payments have become one of the most popular methods for account-to-account transfers in America today. In 2021 over $72.6 trillion worth of funds were transferred through the ACH network, a year-on-year increase of over 17 percent. (Source: NACHA)
An ACH transfer can be one of two types: ACH credit and ACH debit.
They are distinguished by being push payments and pull payments, respectively. Let’s take a look at what this means below.
What is an ACH credit transaction?
An ACH credit is a type of ACH transfer where funds are pushed into a bank account. That is, the payer (e.g., a customer) triggers the funds to be sent to the payee (e.g. a merchant).
For example, when an individual sets up a payment through their bank or credit union to pay a bill, this would be processed as an ACH credit.
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How do ACH credit transfers work?
You are most likely to use an ACH credit transfer to settle a one-off bill or pay for a service, to receive your salary or US stimulus payments. Popular methods include online banking apps, pay links, and web pages, where payers securely input their banking details.
Payers will need the recipient's banking details - account name, account number, and bank routing number to make ACH credit payments through a banking app.
When sending ACH credit via a pay-link or web page, the payer will only need to enter their own banking information and possibly a customer reference or number. Read about how to make ACH payments.
How long does an ACH credit transfer take?
Unlike with wire transfers, instant ACH credit transfers are not available. It will typically take up to 3 business days to be available in the payee's account.
The actual time taken will vary based on the bank involved and the time of day that the transfer was initiated. Read more about ACH processing time here.
How much does an ACH credit transfer cost?
Many ACH credit transfers are free. However, fees may be charged depending on several factors. These factors include the bank sending the funds, the bank receiving the payment, and whether any third-party services were used to facilitate the transfer.
Any fees charged for ACH credit payments are nominal compared to wire transfers, which can cost between $20 - $30. Read more about how much ACH transfers cost.
What is ACH debit?
An ACH debit is a type of ACH transfer where funds are pulled from a bank account. That is, the payer (e.g. customer) gives the payee (e.g. merchant) permission to take payment from their account whenever it becomes due.
For example, when an individual sets up a recurring monthly payment for a mortgage or utility bill, an ACH debit would be used and their bank account would be debited automatically.
The automated nature of ACH debit makes it a popular choice for businesses collecting recurring payments. This automation significantly reduces late and failed payments, which are severe problems for any business collecting payments through invoicing and credit cards.
Types of ACH debit
The ACH system supports several different types of debit (listed below). Each is identified by its own Standard Entry Class (SEC) code. An SEC code represents a specific ACH debit use case. Some allow recurring payments, while others only allow one-off payments.
|SEC code||ACH debit name||Description|
|ARC||Accounts Receivable Conversion||An ACH debit used when payment is received for an account receivable in the form of a check. Allows a paper check to be converted into an electronic ACH payment.|
|BOC||Back Office Conversion||An ACH debit used when the in-person purchase of goods or services is done via check, and which will be processed later in the back office. Allows a paper check to be converted into an electronic ACH payment.|
|CCD||Cash Concentration or Disbursement||An ACH debit used when taking a payment from another business or within related entities - usually for the purposes of cash management.|
|CTX||Corporate Trade Exchange||An ACH debit used when taking a payment from another business. Enables the merchant to add multiple addendums to the payment, so they can cover a number of invoices without losing information.|
|IAT||International ACH Transaction||An ACH debit that applies to all collection methods where the end beneficiary of the debit is a non-US based business.|
|MTE||Machine Transfer Entry||An ACH debit used when debit is initiated at an electronic terminal.|
|POP||Point of Purchase||An ACH debit used when converting a check that has been given to the merchant at the point of purchase, or at a manned bill payment location, and will be processed immediately.|
|POS||Point of Sale||An ACH debit used when the debit is initiated at an electronic terminal for a point-of-sale transaction.|
|PPD||Prearranged Payment and Deposits||An ACH debit used when the debit is initiated via a paper-based customer authorisation.|
|RCK||Re-presented Check Entry||An ACH debit used when collecting a debit from a check previously returned due to insufficient funds.|
|SHR||Shared Network Transaction||An ACH debit used when the debit is initiated at an electronic terminal for a point-of-sale transaction.|
|TEL||Telephone Initiated Entry||An ACH debit used when the debit is authorized by phone.|
|TRC / TRX||Check Truncation||An ACH debit used when a debit is initiated under a Check Truncation Program.|
|WEB||Internet Initiated Entry||An ACH debit used when the debit is authorized online.|
For recurring payments, the primary ACH debit types of interest are:
WEB (Internet Initiated Entry)
TEL (Telephone Initiated Entry)
PPD (Prearranged Payment and Deposits)
CCD (for business accounts)
For the rest of this guide, we’ll refer to these types of ACH debit only, unless stated otherwise.
eCheck vs ACH debit
You may hear the term eCheck being used interchangeably with the term ACH debit. ACH debit is the overarching term used for all debit types in the ACH system. eChecks refer to just a subset of SEC codes - specifically, the types of ACH debit that enable merchants to convert paper checks into an electronic debit (i.e. ARC, BOC, and POP transactions).
Direct Deposit vs ACH debit
A Direct Deposit is a type of payment made via the ACH network. Broadly speaking, all payments made via the ACH network are either Direct Deposits or Direct Payments - and ACH debits are a type of Direct Payment. The broad difference between Direct Deposits and ACH debits is that the former have funds being pushed into an account, while the latter have funds being pulled out of an account.
Who is GoCardless?
GoCardless is the simplest way to collect payments via ACH debit. We can help your business automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.