What is an ACH check, and how does it process?

An ACH check is an electronic transaction to transfer money between bank accounts. Think of it as a digital version of a paper check that sends money from one account to another using the Automated Clearing House (ACH) network. It's generally quicker, more secure, and more cost-effective than paper checks.

What is an ACH check?

An ACH check is an electronic payment processed through the Automated Clearing House (ACH) network, a secure system that coordinates electronic payments and electronic fund transfers between U.S. financial institutions.

Unlike traditional paper checks, ACH checks operate digitally, moving funds directly from one bank account to another. ACH checks offer clear advantages over traditional checks:

• The processing time is generally 1–3 days
• They’re encrypted and highly secure
• The risk of fraud or human error is lower
• They remove printing, postage, and manual reconciliation costs

Key terms

You may hear ACH referred to in different ways, so here's a quick breakdown of the key terms:

• ACH: Stands for the Automated Clearing House, the U.S. financial network that coordinates the electronic payments and transfers
• ACH payment: Any payment processed through the ACH network
• ACH transfer: The act of moving funds from one account to another via the ACH network

Nacha, formerly the National Automated Clearing House Association, is the nonprofit organization that manages the ACH network and sets guidelines for ACH transfers. According to Nacha, in 2024, the ACH network processed 33.6 billion payments worth more than $86 trillion.

Who uses ACH checks?

Individuals and businesses choose ACH checks because they're quicker, less expensive, and more secure than paper checks, particularly for recurring or high-volume transactions.

ACH checks are commonly used by:

• Businesses: To pay vendors, employee salaries, or collect customer payments
• Consumers: To make recurring bill payments or direct deposits
• Government agencies: To distribute tax refunds and other payments

ACH processing works

Here’s a step-by-step breakdown of the ACH payment process:

Step 1: Initiation

First, the originator, or payer, initiates the ACH transfer request. They could be an individual or a business, and they do this through their bank or payment processor.

Types of transactions include:

• Payroll (direct deposit)
• Customer or vendor payments
• Bill payments
• Recurring payments

Step 2: ACH transfer

Next, the originator’s bank or payment processor submits the transaction to an ACH operator or central clearing facility. The two leading ACH operators are:

1. Federal Reserve
2. The Electronic Payments Network (EPN), through The Clearing House

The role of the ACH operator is to sort and forward transactions to the appropriate receiving bank or payment processor. They also make sure payments follow the appropriate guidelines and arrive on time.

Step 3: Settlement

Lastly, the receiving bank or payment processor processes the ACH transaction and then either credits or debits the account accordingly. Payments typically settle in 1–3 days.

ACH payments aren’t processed on weekends, federal holidays, or bank holidays, which could cause a delay. Likewise, insufficient funds will disrupt the transaction.

ACH payment processing times and fees

ACH transfers usually take 1–3 business days to process. They don’t process on weekends or federal holidays, so it could be longer depending on when you initiate payment.

Same-day ACH offers an accelerated option for particularly time-sensitive transactions, such as customer refunds or emergency payroll. But the availability of same-day ACH payments relies on:

• When you initiate the transaction: ACH payments process in batches throughout the day, so you must initiate the payment before the final cutoff
• The size of the payment: There's a $1 million limit on same-day ACH
• Your bank: Some banks don't support same-day ACH payments

ACH check fees

ACH payments are known for being less expensive than paper checks and wire transfers. Generally, it costs $0.20 to $1.50 per transaction. Fees depend on:

• Your bank’s policies
• Cutoff times
• Transaction type
• Volume of transactions
• Whether the payment is standard or same-day

In contrast, paper checks cost between $1 and $4 per transaction, plus shipping and handling costs. Wire transfers typically cost between $10 and $35 per transaction.

ACH vs. eChecks: What's the difference?

Although people sometimes use the terms interchangeably, ACH payments and eChecks function differently as digital payments, with distinct processing methods and technical characteristics.

eChecks, or electronic checks, are a type of ACH payment that involves transferring money electronically between two checking accounts. The key difference lies in the authorization process: eChecks typically require authorization for each transaction, while ACH payments can be pre-authorized for recurring payments.

Here's a breakdown of key differences:

Common misconceptions about ACH payments vs. eChecks

Let’s clarify some of the most common questions related to ACH checks and eChecks:

• Are ACH checks and eChecks on different networks? While they're processed slightly differently, both payment options use the ACH network.
• Do eChecks take longer to process than ACH checks? Timing can vary, but eChecks typically process in the same timeframe as ACH payments.
• Are eChecks less secure than ACH checks? As long as they move through compliant and reputable processors, eChecks are just as safe as ACH. Just be sure you understand your payment processor’s security measures before initiating either payment.
• Are ACH and eChecks only for direct deposit? Both payment methods can process ACH credits or ACH debits.

The benefits of using ACH payments

ACH payments have become an essential payment method for modern businesses. They deliver the reliability, efficiency, and security that today’s fast-paced economy demands.

Some of the top business benefits include:

• Lower transaction costs: ACH processing fees are usually $0.20 to $1.50 for each transaction. This is much cheaper than paper checks, which cost anywhere from $1 to $4 when accounting for check processing, materials, postage, and labor. For businesses making hundreds or thousands of payments a month, these savings add up.
• Faster settlement compared to paper checks: Standard ACH payments process in 1–3 business days, compared to 5–7 for paper checks. And if you’re down to the wire and meet the eligibility criteria, same-day payments are possible.
• Enhanced security and reduced fraud risk: ACH's digital process eliminates many of the fraud risks associated with paper checks. According to the Association for Financial Professionals, 63% of organizations still experience check fraud. With digital authorization, encryption, and automated verification, the risk of tampering, forgery, and theft drops.
• Automation and convenience for recurring payments: ACH supports automated recurring payments for utility bills, subscriptions, payroll, or loans. This reduces your administrative burden and the risk of late or missed payments.
• Reliability for payroll and vendor payments: ACH offers predictable settlement times and lets you schedule payments precisely. This makes cash flow forecasting more accurate and removes the guesswork of waiting for checks to arrive and clear.

When businesses use ACH

For businesses, ACH payments streamline financial operations by automating routine transactions and reducing manual processes. Common applications include:

• Payroll: Companies deposit employee wages into bank accounts via ACH, eliminating paper checks and ensuring timely, reliable payments. This reduces payroll costs and administrative time while providing employees with quick access to their earnings.
• Vendor payments: ACH lets you pay suppliers and service providers automatically on predefined schedules. This means on-time payments, stronger vendor relationships, potential early payment discounts, and detailed digital records for accounting.
• Recurring bill payments: Utilities, insurance companies, and subscription services use ACH for automatic monthly billing. This ensures automatic payments and scheduling, so you don’t need to worry about it.
• B2B transfers: Many companies prefer to pay vendors via ACH, reducing administrative costs and streamlining accounts payable. It’s secure for wholesale orders, lease payments, and other large transactions.

Why businesses choose ACH

For business transactions, there are a variety of options. But businesses choose ACH for these reasons:

• Cost-effectiveness
• Speed
• Security
• Reliability
• Automation of recurring payments
• Integrations with accounting and expense management software

Regulatory and compliance considerations

There are authorization, security, and recordkeeping guidelines for using ACH payments. Keep these regulatory and compliance considerations in mind:

• You must follow Nacha guidelines for timing, formatting standards, and ACH return codes
• All banking and payment information must be secured based on Nacha and FTC rules
• Originators need to maintain written or digital authorizations for ACH payments and comply with consumer protection rules
• Same-day ACH payments are subject to cutoff times and dollar limits

Streamline ACH payments with Ramp

ACH payments offer businesses a secure, cost-effective way to transfer funds while minimizing reliance on paper checks or manual processing. Ramp enhances this process by automating ACH transfers, providing real-time tracking, and reducing processing costs through efficient workflows.

With Ramp Bill Pay, finance teams gain complete visibility into every payment. Track status in real time, schedule transfers with precision, and automate reconciliation with audit-ready digital records. Built-in security protocols and streamlined approval flows protect sensitive financial data.

Ready to learn more? Try an interactive demo and see how Ramp can automate your accounts payable function.

This post includes general information about ACH payments. For help with ACH functionality specific to Ramp, visit Ramp Support for more details.