What is an ACH payment?

It takes place on the ACH network, but there are several different types, and both pros and cons to them.

An ACH payment is a type of electronic bank-to-bank payment in the US. It’s made via the ACH network, rather than going through the card networks such as Visa or Mastercard. An ACH payment is also commonly referred to as an ACH transfer or ACH transaction.

There are two main categories of ACH payments:

  • Direct Deposits
  • Direct Payments

Direct Deposit covers all kinds of deposit payments from businesses or government to a consumer. This includes payroll, employee expense reimbursement, government benefits, tax and other refunds, and annuities and interest payments.

Direct Payment covers the use of funds for making payments, either by individuals or organizations. This type of ACH transaction is the primary focus of this guide - any reference to ACH payment, ACH transfer, or ACH transaction in this guide refers to Direct Payments, unless stated otherwise.

ACH benefits - at a glance

Using the US bank-to-bank infrastructure to process payments has significant benefits for companies and organisations needing to take payments on an ongoing basis. Notably:

  • Low cost - Since an ACH payment is not routed through the relatively expensive card networks, it tends to be a cheaper method for electronically transferring funds.
  • High retention - Credit and debit cards expire, leading to involuntary churn. With an ACH payment, a bank account is the source of funds and as such the risk of involuntary churn is significantly reduced.
  • Open to anyone - Anyone with a US bank account is able to pay via the ACH scheme. This includes both businesses and consumers.

One disadvantage of ACH payments, however, is that they are not instant (more on this in Chapter 3).

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