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What are ACH Payments? A Complete Guide to ACH

In this article, we will cover:

  • What is the Automated Clearing House (ACH)?

  • What is an ACH payment?

  • ACH Categories: Direct Deposit vs Direct Payment

  • Types of ACH payments

  • ACH transfer times

  • How much does ACH cost?

  • Benefits of ACH payments

  • ACH: Key takeaways

What is the Automated Clearing House (ACH) Network?

The Automated Clearing House Network, or ACH, is a network used for electronically moving money between bank accounts across the United States. It’s run by an organization called Nacha, formerly the National Automated Clearing House Association (NACHA).

Nacha governs the ACH network, creating and upholding the rules required for the ACH network to operate as a safe and effective payments system. The organization was formed in 1974 and has overseen the development of ACH since then: in 2020, over $61.9 trillion worth of funds was transferred as ACH transactions, a year-on-year increase of almost 11 percent. 

Transaction types include government, consumer, and business-to-business transactions, as well as international payments.

The ACH network may also be referred to as the ACH payment system, scheme, or simply as ACH.

What is an ACH payment?

An ACH payment is a type of electronic bank-to-bank payment. The ACH system is a way to transfer money between bank accounts, rather than going through card networks or using wire transfers, paper checks, or cash.

The Automated Clearing House network is only available in the US, so ACH payments can't be made in the UK, Eurozone, or anywhere else outside the United States.

ACH payments are also commonly referred to as ACH transfers or transactions. 

ACH Categories: Direct Deposit vs Direct Payment

There are two main categories of ACH transactions: direct deposits and direct payments.

Direct Deposit is used for payments from businesses or the government to a consumer, particularly for payroll, as well as government benefits, tax refunds, interest payments, and more.

Direct Payment covers the electronic movement of funds to make or receive payments, both by individuals or organizations. Examples include sending money to family, purchasing a product or service, paying bills, or supporting a not-for-profit organisation. Direct Payment ACH transactions are the primary focus of this guide.

Types of ACH transfers

Within the Direct Payment category, there are two main types of ACH transfers, known as ACH Credit and ACH Debit.

The main difference between the two is whether the money is 'pushed' or 'pulled' between accounts.

ACH Credit pushes funds into an account, meaning that customers are responsible for initiating the transfer of funds to your business. They 'push' the money from their bank account to yours.

On the other hand, ACH Debit pulls funds out of an account. With a customer's authorization, a business can collect payments directly from their customer's account.

To learn more, read our guide about the difference between ACH Debit & Credit

Take control of getting paid and say goodbye to the stress of late payments with ACH Debit and GoCardless. Automate collection and reconciliation, saving time usually spent on financial admin.

*"Now, with GoCardless, our invoices are sent out and payments are automatically collected without the hassle of chasing clients for late payments. Our clients love GoCardless as it saves them more time and gives them more transparency."* - Simon Kallu, Managing Partner, GrowFactor*

Learn more about ACH Debit

How long does an ACH payment take to process?

ACH transactions typically take 3 working days to appear in your bank account, provided relevant cut-off times have been met.

Although Nacha states that almost all ACH payments are eligible for same-day processing, the time of day you submit the ACH file to your bank impacts when the funds become available. 

Learn more about ACH Payment Timings, where you can view the processing timeline in more detail. We’ve also rounded up some of the options for taking instant ACH payments here.

How much does ACH cost?

The median internal cost for processing ACH payments is $0.29 per transaction.

However, the total cost associated with accepting ACH payments varies depending on a number of factors. There are two routes available to businesses that would like to access ACH payments, direct and through a third-party payment processor. 

It can be costly to obtain direct access, due to fees, employee wages, and the time taken to implement. Nonetheless, this can be suitable for the largest businesses, although our full guide to ACH fees goes into this in more depth. 

A popular option is to pay for ACH access through a payment processor like GoCardless. This drastically reduces the time required to access the scheme, as well as simplifying ongoing costs and providing a payment solution that is ready to use immediately. Learn more about the two routes to getting set up with ACH, or find out about collecting ACH payments through GoCardless here.

Benefits of ACH payments

1. ACH is cheaper than accepting card payments

With ACH, funds are transferred directly from one account to another and not routed through expensive card networks, which charge 1.3%-3.5% as a base fee.

2. ACH Debit lets you decide when you get paid

Unlike wire transfers, ACH Debit is a pull payment that gives you control over the transfer date, frequency, and amount.

Taking control of your incoming payments guarantees you have better cash flow in your business. Improved cash flow enables you to undertake realistic business planning and relieve the wasted time and stress of chasing late payments.

3. Low payment failure rate, higher customer retention

Bank accounts do not expire or become lost, so payment failure and accidental customer churn rates are significantly reduced compared to card payments, with their failure rate of 10-15%. In the relatively rare event of payment failure, GoCardless can even attempt to pull the payment from your customer's bank up to three times using its intelligent retries product, Success+.

4. No more chasing late payments

By reducing failed and late payments, ACH Debit frees up the time businesses otherwise spend on dealing with these issues, creating more space to get other essential tasks done. 

5. Automation saves time and money

By integrating automated payment collection via ACH Debit with existing accounting software, businesses can save even more time on financial admin such as bank reconciliation. GoCardless integrates with over 200 partners including Xero, QuickBooks, Zuora, and Sage. 

6. It's easy to start accepting ACH payments

In just a few clicks, you can create a mandate and send a link to your customer who completes the online form - you can then collect payments as required.

7. International payment collection is cheaper and easier

As ACH is only for bank transfers within the US, you have to find a different payment method to serve international customers.

With GoCardless, you can use ACH Debit to collect payments from overseas customers and be paid directly into your US bank account in dollars.

"Paying with a low-cost method like ACH debit really makes a big difference for small businesses. It allows us to reduce costs, and, as a result, more money stays in the local economy." - Carrie Pollak Owner, Diaper Stork

ACH: Key takeaways

  • ACH stands for Automated Clearing House, run by Nacha, the former National Automated Clearing House Association.

  • ACH payments are a type of electronic bank-to-bank payment only available in the US.

  • Payments made via the ACH network are cheaper and enjoy a higher success rate than alternative methods, such as card payments.

  • ACH Debit payments are accessible to many American consumers and increase customer retention.

  • It’s easy to set up ACH Debit with GoCardless and is worth consideration by any business taking recurring payments.

  • ACH payments through GoCardless enable you to serve overseas customers and receive payments directly into your US bank account using the best exchange rate.

  • Accepting ACH Debit payments with GoCardless puts you in control of getting paid, eliminating the stress of late payments while saving you time and money.

You can solve the issue of late payments with ACH Debit and GoCardless!

"Bank transfers were usually the most common payment method that we had... that means clients remembering to pay... Payment by GoCardless is now standard policy for our payment terms. And that's because it will help our cash flow, it will help to get paid on time." - Saija Mahon, Founder & MD, Mahon Digital.

Learn More About ACH Debit

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.

Get paid on time with ACH Debit via GoCardless. Take control: stop chasing late payments and save yourself time, money and stress.

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NextACH Debit vs ACH Credit: A Comparison

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