An ACH transfer is an electronic funds transfer between banks that allows money to be pulled from one account to another through the Automated Clearing House network (ACH). According to Nerd Wallet, the ACH network handles more than 26 billion payments totaling over $61 trillion per year. In a society dominated by technology, it makes sense that electronic payments are becoming the most common and efficient method to exchange currency amongst entrepreneurs and small businesses – they also tend to be faster to clear and more reliable than paper checks.
You can use ACH transfers for countless types of payments, whether for business or personal expenses. These transfers range widely, from external funds transfers to person-to-person payments. Other common transactions include bill payments and direct deposits from employers and government benefit programs.
There are two different types of ACH transactions: ACH debit transactions and ACH credit transactions.
A wire transfer is another method of moving money quickly between people or businesses without physically exchanging cash. Wire transfers usually process within minutes or hours after payment instruction is approved by the sending bank, as opposed to the multi-day wait for a Standard ACH transfer. The sender provides the instructions for the transfer with the recipient's credentials, including their name, bank, account number, dollar amount, and potentially other information. Overall, wire transfers are most conducive for large sum cash transfers and time-sensitive matters because of the expense associated with them.
Ultimately, ACH transfers can take longer to process, but payments are cheaper than wire transfers. On the other hand, wire transfers tend to be quicker but cost more. Learn more about ACH versus wire transfers.
Rules from the National Automated Clearing House Association, Nacha (the organization that oversees the ACH network) govern payment timelines. A network operator processes ACH transfers in batches only seven times a day. In specified cases, requests for same-day ACH payments can be processed and delivered within hours or in one to two business days. Same-day ACH payments have a deadline of 4:45 pm Eastern Standard Time each day, regardless of one’s time zone.
Most banks enforce generous precautions to prevent scams, causing potential delays to transfer completion. Additionally, ACH transactions can be canceled or returned if insufficient funds are in the sending bank account. Learn more about how long ACH transfers take.
Anyone making bill payments, especially small business owners making and receiving such payments, can utilize ACH as a beneficial payment method. Whether you accept payment as a business owner or need to pay vendors, ACH transfers are essential in running any business. Accepting ACH payments as a business owner might be an excellent fit for your company if you provide the following types of services:
While there’s usually no fee to receive an ACH transfer, your bank or payment provider sets your price for ACH payments you make. The fees are typically lower than credit card processing fees. For example, Square charges 2.9% plus 30 cents for online credit card payments, whereas they charge only 1% with a $1 per-transaction minimum fee for ACH payments. Similarly, Stripe charges 2.9% plus 30 cents for online credit card payments but 0.8% for ACH payments, with a maximum ACH per-transaction charge of $5. Person-to-person payments that you initiate through your bank or third-party apps, such as PayPal, can also cost a small fee, depending on the platform and payment method.
It’s not uncommon for many small business owners to use third-party payment services to send or receive payments through platforms such as PayPal, Zelle, or Venmo through the ACH network. All of these platforms allow users to send and receive money electronically.
Venmo works more similarly to PayPal, functioning as a digital wallet. You can collect money in your Venmo account and then transfer it to other users or transfer it to your personal checking account, although there are some transaction fees if using a debit card or credit card.
As a business owner, accepting ACH payments comes with some benefits:
ACH transfers are an easy and efficient method of both paying and receiving money for your small business. While transfer times can vary depending on Standard versus Express ACH, they are an efficient and trusted method of sending and receiving money.