What You Need to Know About ACH Payments

With paper checks expected to be phased out by 2027, the term “ACH payments” has become a frequent phrase. You likely know what an ACH payment is, but perhaps don’t know what “A-C-H” stands for.

We can thank the United States Air Force for the concept of using an Automated Clearing House (ACH) to expedite the movement of funds between two parties. In the late 1960s, the U.S. government used the ACH concept to expedite paychecks to Air Force employees. It worked out so well that it led to the expansion of paying other employees, and it soon became the payroll standard for all government employees and their paychecks. By 1978, electronic funds transfers, or EFTs, were widely available. In 2001, all banks insured by the FDIC could join the ACH network. This was important because in the same year, Internet-based payments went into effect, which would become a big part of ACH payments.

ACH Network

The ACH network is the national automated clearinghouse for electronic funds transfers. The network processes transactions for consumers, businesses, and federal, state, and local governments. ACH transfers include direct deposit for payroll, Social Security and other benefit payments, tax refunds, and merchant payments. Consumer payments on everything from monthly insurance premiums to mortgage loans, car payments, utility payments, and other bills initiate ACH direct debit transfers. In fact, some $62 trillion is moved each year through ACH transactions. The Electronic Payments Network is part of the ACH network. There was an 11% rise in ACH transactions during the COVID-19 pandemic. People are embracing ACH payments even more as consumers seek more contactless payment options.

What is an ACH Payment?

An ACH payment is an electronic bank-to-bank payment. Moving money between merchants and their customers is similar to the process used through payment card networks such as Visa or Mastercard. ACH payments are commonly referred to as an ACH transfer or ACH transaction. All have the same meaning. The ACH network is a U.S. payments network only.

There are two main categories of ACH payments:

• Direct deposits
• Direct payments

Direct deposit refers to all kinds of deposit payments from businesses or the government that place money into the receiver’s bank account for payroll, employee expense reimbursement, government benefits, tax refunds, annuities, and interest payments.

Direct payment is used by a Payor (either a company or an individual) to make payments to others.

Process Time for ACH Payments

While in most cases, ACH transactions are completed within 24 hours, it can take more than three working days for funds to appear in your bank account. The time of day you submit an ACH transaction to your bank can be particularly important. Anything after 3:00 p.m. may not get started until the next banking day.

Benefits of ACH Payments

Using ACH payments brings significant benefits for companies that have recurring monthly fees that are due from their client. Monthly ACH debits of customer accounts can automate the payment process while significantly reducing delinquent payments.

• Low cost: Since an ACH payment is not routed through credit card processing networks, ACH transactions are a cheaper method for electronically transferring funds.
• High retention: Credit and debit cards expire. With an ACH transaction, a bank account is the source of funds, and unless it has insufficient funds, the monthly transactions are completely automated, and users seldom cancel monthly payments.
• Open to anyone: Anyone with a U.S. bank account can pay via ACH. This includes businesses and consumers.

Is there a difference between wire transfer and ACH transfer? Yes! Speed and price are the big factors. The wire network processes transactions in real time, so wire transfers are usually delivered within minutes. ACH payments can take several days to settle. While wire transfers have fees that average $25 per transaction, an ACH transfer will cost about 25 cents. Recipients of ACH funds have no fee. Incoming wire transfer fees can cost the recipient $5 to $10 per incoming wire transfer. Wire transfers are best for large or time-sensitive transfers within the U.S. or abroad. If time isn’t an issue, an ACH payment offers a significant advantage over a wire transfer because of its lower cost.

As the financial world continues to evolve, ACH payments stand out as a simple, secure, and cost-effective solution. From payroll to everyday bills, they streamline transactions and reduce delays—making life easier for consumers and businesses alike. As 2027 approaches and paper checks fade away, becoming familiar with ACH is not just helpful, it’s essential.