ACH payment: Your guide to getting it right

Wise
19.08.19
6 minute read

If you’ve ever gotten a salary or did an automatic bill payment in the United States, then you probably interacted with the ACH network. The ACH Network allows for secure and efficient money transfers from one bank account to another. ACH transactions can be recurring and one-time payments; government, consumer and business-to-business transactions; international payments; and payments plus payment-related information¹.

ACH is one of the largest, safest and most reliable payment systems in the world³. In 2018, the ACH Network processed nearly 23 billion payments, marking it the fourth consecutive year in which it added more than 1 billion new payments. The total value of these payments exceeded $51.2 trillion.²

One of the core benefits of the ACH network is the fact that it does away with having to write checks. The funds are transferred electronically and so it increases the security of your bank information and prevents theft or loss of a check.

List of contents

What is the full form of ACH?

ACH stands for Automated Clearing House Network. The name refers to the fact it coordinates paperless electronic payments or automated money transfers between banks and financial institutions. In the US, ACH can sometimes be referenced casually as direct deposit, direct pay or electronic check.⁴

What are ACH payments?

Direct Payment via ACH is the electronic transfer of funds in order to make a payment. Companies sometimes refer to it by other names like automatic bill payment, automatic debit, electronic bill payment, e-check or direct debit⁵. As an individual, you can use ACH to make payments through the Direct Payment system as an ACH credit or ACH debit.

An ACH credit is processed as a Direct Payment and pushes funds into an account. An example of this is when you start the process to make a payment from your bank or credit union to pay a bill.

An ACH debit is processed as a Direct Payment when it pulls funds from an account. An example of an ACH debit is when you start a recurring monthly payment for a mortgage or an electricity bill and your account is debited that amount automatically.⁶

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What is ACH mandate?

So, to start there are two ways of making payments with ACH- a one-time payment or an ACH mandate. In both cases, the bill is paid using Direct Payment via ACH by funds withdrawn from your bank checking or savings account.⁷

One-Time payment by Direct Payment via ACH, for something like a credit card bill, is typically done by you receiving a notification that your bill is ready and you determine the amount to pay. You can then authorize the amount to pay using Direct Payment via ACH.

An ACH mandate, on the other hand, is when you or the billing company set up a recurring payment for a specific bill or payment that is auto-debited from your account. This can be items like your mortgage or car loan which are fixed amounts that repeat on a monthly basis. You authorize this ahead of time with your billing company for a specific date so it comes out automatically each month.

ACH mandate charges

Generally, there are no fees for using Direct Payment via ACH. This is particularly true for bills that have recurring payments that you pre-authorize, or for authorizing a company to initiate a Direct Payment via ACH.

But it is best to check with your bank just in case. Some government agencies, e-tax filing, and other service providers may charge a convenience fee for all payment types. Direct Payment via ACH does save you time and money compared to the old style of writing and mailing a check, but there may be other options that allow for immediate payment processing if you want to transfer money faster.⁸

Types of ACH transfers

There are two types of ACH transfers- Direct Deposit and Direct Payments. With Direct Deposit you can have money deposited directly into your account electronically; while with Direct Payment it is deducted from your account.

With Direct Deposit via ACH, you receive your pay directly into your savings or checking account at the bank, prepaid card or payroll card if applicable. In most cases, there are no additional fees to set up Direct Deposit via ACH and you can do it in collaboration with your paying organization. Most people opt for Direct Deposit for⁹:

  • Salaries and payroll
  • Travel and other employee expense reimbursements
  • Bonuses and commissions
  • Pension/401K disbursements
  • Annuities
  • Dividend and interest payments
  • Social Security and other government payments
  • Tax and other refunds

Direct Payment via ACH, as mentioned earlier, allows you to send and receive payment from your checking or savings account electronically. It gives you the option to choose what amount and when to pay a bill, or to set up a mandate to auto-deduct a certain amount per month. Its benefits lie in the fact that you don’t have to write a check or worry about if it is arriving on time to pay your bills. You can use Direct Payment for¹⁰:

  • Charitable donations and recurring gifts
  • Funding investment accounts
  • Insurance, tax and homeowners' association (HOA) payments
  • Mortgage, automobile, and other loan payments
  • Subscription and membership fees
  • Tuition payment plans

How does ACH payment work?

To get into the technicals of it, the ACH network processes payments through a batch processing system. A financial institution will gather a number of payments during a specified time during the day to then process all at once. This can be a few times a day to multiple times throughout the day. This is different from immediate or real-time processing.

To enforce the ACH payment, you have to sign up with your online bill payment service or authorize it on the billing company’s website. You then will set the scheduled payment date for the one-time payment or mandate. If the payment date changes, the company is required to send you a written notice at least one week before the next payment date. If the date is on a federal holiday, the debit will occur the next business day.¹¹

The governing body, NACHA, operating rules require that ACH credit settles in 1-2 business days, and ACH debits settle on the next business day. There have been certain enhancements to allow for same-day settlements for ACH transactions.¹²

ACH charges

Typically, there is no fee for using Direct Payment or Direct Deposit via ACH, particularly for recurring payments that you pre-authorize, or for authorizing a company to do so. Although many banks and credit unions do not charge a fee for using their online bill payment services, this could vary. Some government agencies, electronic tax filing, and other service providers might charge a convenience fee for all payment types.³

ACH transfer vs. Wire transfer

Similar to ACH transfers, wire transfers allow you to transfer money electronically. But there are two main differentiators. First, wire transfers are processed as individual transactions, rather than batch payments. So the processing starts immediately and can be executed faster. Second, wire transfers can be from individual to individual accounts and are generally used by consumers in the US to transmit money abroad. ACH transfers are primarily used for recurring payments and deposits for organizations within the United States .¹⁴

Wire transfers generally carry a higher fee than ACH payments as well.

How to do an ACH transfer?

A Direct Deposit via ACH is easy to set up by talking to your employer or bank to get the authorization form. The form will ask you for your personal and bank account details to set up the payment and authorize the recurring deposits. Once the form is completed and finalized, you can begin receiving your payment directly in your bank account.

For Direct Payment via ACH, you can either sign up with the companies that send you bills or use your bank to complete the payment. With the first option, you can contact the company or log into their website to find out how to enroll in Direct Payment with your bank account. With your bank, you can use their online banking website or app to schedule the payments.¹⁵

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Sources used for this article:
1. About NACHA
2. Automated Clearing House
3. ACH Statistics
4. What is ACH
5. ACH for Consumers- DIrect Payment
6. ACH Quick Facts
7. Direct Payments via ACH
8. Direct Payments via ACH
9. ACH for Consumers- Direct Deposit
10. ACH for Consumers- Direct Payment
11. Direct Payments via ACH
12. Direct Payments via ACH
13. Benefits of Direct Payment
14. Wire Transfers
15. ACH for Consumers- Direct Payment


This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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