You might already be familiar with ACH payments, but you might not know it because of the unfamiliar terms. Find out what ACH means and how you can use the payments with your payroll. Show
ACH is an electronic funds transfer system that moves money between bank accounts. There is an ACH withdrawal from one account and an ACH deposit to another. What does ACH stand for? The abbreviation stands for Automated Clearing House. The ACH system is run by the National Automated Clearing House Association (NACHA). You can use an ACH transfer for many business tasks, including paying vendors, receiving payments from customers, and paying employees. For the purposes of this article, let’s focus on how you can use an ACH transaction for payroll. How to use an ACH payment for your payrollACH payments are what make direct deposit for employees work. Money is transferred from your business bank account and deposited into your employees’ bank accounts. Direct deposit works well as an alternative to paper checks. You don’t have to print, write, or distribute checks. And, employees don’t have to take a trip to the bank every payday. You need a payment processor to use direct deposit. The processor will remove the funds from your account and place them in your employees’ accounts. Your payment processor can be a bank, an electronic funds transfer company, or your payroll provider. Patriot Software works hard to make your payroll run smoothly We made Patriot’s payroll software with small business owners in mind. Here are just a few of the features we offer:
How long does an ACH deposit take?So, when does direct deposit go through? It depends. ACH payment processing time can take several business days. Business days are Monday through Friday, excluding bank holidays. The total amount of time to process direct deposit depends on your provider. Some providers will take longer to complete the transfer. You might be able to pay more to speed up the process. Your direct deposit provider will be able to tell you exactly how much time you need for ACH payment processing. Let’s say your ACH direct deposit provider takes four business days to process the payment. You want to pay your employees on Friday. So, count back four business days. You will need to submit your direct deposit request on Monday. There are often cut-off times to submit your direct deposit. This means if you submit your direct deposit request after a certain time, the ACH transfer won’t happen until the next business day. For example, if the cut-off time is 9 p.m. every business day, you must start your ACH transfer before 9 p.m. If you start the transfer after 9 p.m., your transfer won’t actually begin until the next business day. Missing the cut-off time can cause your employees to receive their payments late. How much do ACH payments cost?There is a fee to use ACH payments for direct deposit. The cost will depend on your provider. Generally, the cost is per transaction. So, if you pay five employees through direct deposit, you will be charged for five ACH transactions. You can often speed up your ACH processing time by paying a larger fee. For example, you might speed up the processing time from four days to two days by paying an increased fee. If there is not enough money in your business bank account, you might have to pay an insufficient funds fee. When you use Patriot’s payroll software, you have access to free direct deposit. Just select that you want to pay your employees with direct deposit, and the ACH transaction will begin when you finish your payroll. Get a free trial of the software, complete with direct deposit. Sign up today. This article is updated from its original publication date of July 10, 2012. This is not intended as legal advice; for more information, please click here. What are ACH Payments?An automated clearing house payment or ACH payment for short, is a form of electronic funds transfer sent from one bank account to another and can be either a credit or a debit. ACH payments are also US-based bank-to-bank transfers that are aggregated and processed in batches through the Automated Clearing House network, run by NACHA. ACH payments can be referred to as direct payments. NACHA, formerly the National Automated Clearinghouse Association manages the ACH network. NACHA is a self-regulating non-profit organization with supervisory and rule-making functions for ACH transactions, funded by US financial institutions. All ACH transfers are processed through the ACH network run by NACHA, the centralized system that securely transfers money to the proper bank account. Given that ACH payments are both digital and automated, they are more reliable and quicker compared to the paper equivalent check, which helps streamline account payable processes. ACH is a separate network than the major credit card systems like Visa, Mastercard, American Express, etc.
ACH Payment Requirements:
ACH payments are extremely common. In February 2019, The ACH Network set a record in by sending more than 100 million ACH payments in a single day. ACH Processing Examples:
In this post, we’re going to unleash an incredibly thorough examination of ACH payments from the ground up. We’ll define the term, discuss the benefits, describe the functionality, and of course, explain how you can set up ACH payment processing at your own organization. We have a lot of ground to cover, so let’s get started.  That’s right, you can pay invoices with ACH, and if you work in accounts payable, that’s likely what you’re most interested in—we’ll get to that part a bit later in this post. There are two types of ACH transfers: ACH credits and ACH debits. The key difference is that an ACH credit is the money that’s delivered into an account, while an ACH debit is the money that’s pulled out of an account. There are actually several different types of ACH debits that have different purposes and functionality (such as one-time vs. recurring payments). Each type of debit has its own Standard Entry Class (SEC) code—you can see the full list here. How long does it take to process an ACH payment?While ACH is fairly quick; it’s generally not instantaneous. Transfers typically take around 3-5 business days, but factors such as time of day and day of the week play into exactly how long the funds take to transfer along with the type of ACH payment. Outside of the typical ACH, there are Next Day ACH transfers and Same Day ACH transfers. Next Day ACH transfers can settle in 1-2 days. While Same Day ACH transfers can be made within the same business day or next depending on when the ACH payment was initiated. Moreover, Same Day ACH transfers typically come with a same day processing fee. What is the transaction cost for ACH payments?According to NACHA (National Automated Clearing House Association), which is the governing body of ACH payments and transfers, the average processing fee for an ACH payment is 11¢. There are some factors that can influence the cost per transaction, however. For example, the volume of transactions you plan to process—the more payments you send, the cheaper your per-transaction fees will be. This is because there are several different types of fee structures you can use. By this time, you should have a pretty thorough understanding of the nuts and bolts of ACH payments. Let’s zoom out a bit and take a look at the business implications—both financial and operational—that ACH can provide for your organization. Benefits of ACH PaymentsWe are going to primarily discuss the benefits of using ACH payments from a business perspective, but there are plenty of benefits to consumers as well that you can check out. But for organizations that need to issue payments and/or money transfers (aka every business on the planet), ACH comes with plenty of attractive benefits. Let’s take a look: 1. ConvenienceIf you’re comparing the convenience of ACH vs. writing checks, then there is no comparison. No paper checks, no file cabinets to store the checks, no pens to sign the checks, but from a convenience standpoint, ACH is indisputably superior to checks when it comes to the time it takes to cut the check and for a vendor to have the funds available in their account. It’s also not uncommon for vendors to set checks as their preferred method to receive payments, therefore, checks continue to be used throughout industries. 2. Lower cost than creditCredit systems have a similar convenience as ACH, but can also carry significantly more costs. This is especially true for businesses that are going to accept lots of payments on a recurring basis. Credit cards generally carry a fee around 2.5% of the value of the transaction, and they have a flat-rate processing fee. ACH transactions usually cost between $.20 – $1.50. How many transactions are you processing every month and for what amounts? The savings ACH provide can accumulate rather quickly. 3. Works well long distanceACH can be used to transfer money internationally, which can shave days (or even weeks) off of a payment timeline if using a physical check. While there is no global ACH system, many countries have their own systems that will interface with ACH. For example, in Europe, the equivalent system is called SEPA (Single Euro Payments Area) and in Australia, they use “Direct Entry.” 4. Ease of trackingSince the bank is directly attached to the electronic funds transfer, the accounting is much easier to sync up—there’s no need to update two different records manually the same way that you would ‘balance a checkbook.’ Many accounting tools and software services can integrate with the ACH system to provide you with detailed transaction history. How do ACH Transactions work?The entire ACH process is a pretty straightforward seven-step process: 1. Originator initiates the ACH paymentIt all starts when the originator (bank, company, or individual) begins the transaction. This applies to both ACH debits and credits. 2. Originating bank submits ACH entriesThe financial institution or payment processor of the originator (called an “Originating Depository Financial Institution) submits the ACH entry. 3. Originating bank sends ACH entries in batches to network operatorsNext, the Originating Depository Financial Institution sends their batches of entries to an ACH operator such as the Reserve Banks or Electronic Payments Network (EPN). 4. Network operator sorts entriesThe operator then sifts through the batches of entries and determines if they are deposits or payments. 5. Network operator sends entries to recipient bankOnce that fact has been established, the operator then sends them to the respective Receiving Depository Financial Institutions (RDFI). 6. Receiving bank ensures sufficient fundsDepending on if the transaction is a credit and involves the removal of funds, the receiving bank needs to make sure that there is sufficient funding available in the ODFI. 7. Receiving bank credits or debits originating bank accountLastly, it depends on whether the transaction is a deposit or a payment, but the RDFI will debit or credit the receiving account. Perhaps it’s not the most exciting process, but it works. If at this point you’re thinking, “Hey, this all sounds pretty good, but how do we implement ACH?” keep reading! How to Set up ACH Payment ProcessingBefore we get into the details of how to set up ACH payments for your organization, there are a few rules you need to know.
Got it? Good; here’s a step-by-step guide on how to set up ACH payment processing. Step 1 – Choosing an ACH merchantFirst off, call your bank to see if they themselves are a merchant provider—many banks are. If not, your best course of action is to review a list of ACH merchant providers and examine their service offerings. A few things you’ll want to look out for:
Don’t be shy about interviewing several merchant providers and making sure that their service offerings fit your needs such as invoice processing, employee payments, etc. Step 2 – ACH onboardingOnce you’ve selected a merchant, it’s time to get up and running through what’s generally referred to as the corporate enrollment process. It varies depending on which vendor you use, but the process usually consists of the following:
This process is unique to each ACH operator. Step 3 – Acquire permissionIn order to actually transfer money with ACH, you’ll need to acquire permission from both parties. It’s best to obtain this permission digitally because if there is ever a dispute about a charge, it’s easy to look up that data. Always check to make sure the vendor’s account info is accurate, as well as your own info, to make sure you don’t deposit money into someone else’s account due to a typo. Step 4 – Using the operators portalOnce you’re in, explore your operator’s portal for functionality. Again, these capabilities are unique to each operator, but here are a few common things you should be able to execute:
Step 5 – Start making paymentsNow that you’re all set up, it’s time to start making payments and enjoying the benefits of ACH! Lower transaction fees, more convenient (and faster) payments, and superior tracking and accounting. So what do you think—are ACH payments right for your organization? If you have any questions about this article, or how ACH payments can work with your existing accounts payable processes, feel free to chat with one of our AP Heroes! ACH Payment FAQs
Automated Clearing House or ACH payments are US-based bank-to-bank transfers which are processed through the ACH network run by NACHA. ACH payments are also referred to as direct payments and are commonly used for business-to-business transactions, in addition to employee direct deposits.
ACH payments are common for both consumers and businesses. Consumers use ACH payments to pay bills online, mortgage payments, and other types of loan repayments. Businesses use ACH payments to pay both their employees by ACH direct deposit and pay their vendors or suppliers. Can ACH payments be reversed? ACH payments can be reversed by your bank which often comes with chargeback or ACH return fees. There are only a few circumstance where ACH payments can be reversed such as: payment was issued in the wrong dollar amount, the payment was a duplicate, or the receiving account information is incorrect. What’s the difference between an ACH Debit and ACH Credit payment? ACH debit payments are pull payments and are typically used by consumers to pay bills such as monthly utilities. By entering their bank, account and routing number, consumers can have their bank account withdraw or pull funds via debit to issue the ACH payment. ACH credit payments are push payments and are often used by businesses to pay their employees and vendors or suppliers. This requires the payer to initiate the ACH payment and have the funds pushed into the receiving bank account.
ACH Payments vs. Wire TransfersThis guide guides business management on when to use ACH payments and wire transfers, exploring common uses and situational benefits of each.
Introducing Stampli Direct PayMeet Stampli Direct Pay, a B2B payments service that challenges industry conventions. We set out to make payments the way organizations expect them to be:… read more What does ACH mean in accounts payable?An ACH is an electronic fund transfer made between banks and credit unions across what is called the Automated Clearing House network. ACH is used for all kinds of fund transfer transactions, including direct deposit of paychecks and monthly debits for routine payments.
What does ACH stand for in business?Automated Clearing House (ACH) can help you digitize payroll and vendor payments, saving time and resources.
What does ACH stand for on a bank statement?ACH stands for “Automated Clearing House”, and the ACH Network is the electronic payment-transfer system run by the National Automated Clearing House Association (Nacha).
What are examples of ACH transactions?ACH Processing Examples:. Direct deposit from an employer (your paycheck). Paying bills with a bank account.. Transferring funds from one bank account to another (Venmo, PayPal, etc.). Sending a payment to the IRS online.. Customers paying a service provider.. Businesses paying vendors and suppliers for products and services.. |
What does ach stand for in accounting
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