ACH credit vs. ACH debit: How they work and key differences

Automated Clearing House (ACH) payments likely play a part in your daily life, but do you know the difference between ACH credits and ACH debits? The two terms may sound complex, but the difference is simple: An ACH credit pushes funds to a bank account, while an ACH debit pulls funds from a bank account.

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Understanding the key difference between ACH credits and debits—and exactly how each works—will help you make or accept these payments more confidently.

What is an ACH credit transfer?

An ACH credit is a way to send money electronically from one account to another. The sender initiates a direct payment through their bank, which pushes funds from their account into the recipient’s account.

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ACH credit payments are sometimes called ACH credit deposits and are commonly used for direct deposits. For the person sending the funds, ACH credits can be considered a digital version of a paper check.

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ACH credits are often used for:

• Payroll: Employers use ACH credits to pay their employees via direct deposit.
• Government benefits: The government often deposits benefit checks to citizens using ACH credits.‍
• Bill pay: If you initiate a payment through your bank using an automatic bill payment system (like a mortgage payment), your bank is likely using ACH credit.

What is an ACH debit transfer?

An ACH debit is an electronic payment method that pulls funds from one bank account into another. In this case, the recipient requests payment from the payer. Once the payment is authorized, the recipient’s bank will pull those funds from the payer’s account. ACH debit payments are sometimes referred to as direct debits.

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Here are a few examples of ACH debits:

• Auto-bill payments: Businesses that provide recurring services often use direct debits to make payments. For example, utility companies might have an autopay feature that pulls the amount shown on the bill from their customers' accounts on the day it’s due.
• Business-to-business (B2B) transactions: One-time B2B transactions, like sending money between business partners, are often done using ACH debits. According to Nacha, B2B payments via ACH grew 10.8% year over year in 2023, showing their dominance as a B2B payment method. 
• Government payments: The US government often uses ACH debits to pull money from taxpayers’ accounts for quarterly estimated tax payments, payroll tax deposits, or similar purposes

ACH credit vs ACH debit

ACH credit transactions and ACH debit transactions are both methods for transferring money electronically; they just do so a bit differently. While ACH credits push funds to the recipient, ACH debits pull funds from the payer.

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There are a few other key differences between ACH credits and debits:

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How ACH credits and debits work: A step-by-step process

ACH credit and debit transactions must go through a specific ACH process from start to finish. Let’s look at how it all works for each case.

ACH credit process: Step by step

1. The payer (or originator) needs to make a payment. They provide their bank (the Originating Depository Financial Institution, or ODFI) with banking details such as the recipient’s account information (account number, etc.), amount to be transferred, categorization code, and target settlement date.
2. The bank collects all ACH transaction requests and sends them in batches to the ACH system (or ACH operator) for approval.
3. The ACH network sorts those payment requests. When the time comes to settle the payment, it tells the recipient’s bank (the Receiving Depository Financial Institution, or RDFI) to credit the recipient’s account on the settlement date.
4. The recipient’s bank then places money into the recipient’s account.

ACH debit process: Step by step

1. The recipient (or originator) needs to collect an authorized payment. They provide their bank (the ODFI) with banking details such as the payer’s account information, amount to be transferred, categorization code, and target settlement date.
2. The bank collects all ACH transaction requests and sends them in batches to the ACH operator for approval.
3. The ACH network sorts those payment requests. When the time comes to settle the payment, the payer’s bank (the RDFI) will debit the payer’s account on the settlement date.
4. The recipient’s bank then pulls money from the payer’s account and places it into the recipient’s account.

The ACH network is open for processing payments for 23.5 hours every business day and settles payment requests four times daily. Nacha reports that 44% of these requests are for ACH credits, and 56% are for ACH debits.

ACH credit and ACH debit transaction fees

ACH debit and credit transactions are among the most economical payment methods available for bulk transactions. Yes, there are processing fees associated with using the ACH network, but processing paper checks is more costly for businesses in the long run.

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A recent Association for Financial Professionals (AFP) survey found most businesses pay under 50 cents per ACH transaction, with smaller companies paying between 26 and 50 cents and larger ones between 11 and 25 cents. In contrast, issuing paper checks costs $2.01–$4.00, while receiving them costs $1.01–$2.00 per check due to higher labor costs.

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ACH payments offer a significantly cheaper, more efficient alternative to paper checks, helping businesses save on transaction and labor expenses.

The benefits of ACH payments for businesses

The ACH network benefits businesses of all types, including service providers, manufacturers, wholesalers, retailers, vendors, and suppliers.

Other than the cost savings we discussed above, businesses benefit from ACH transactions in the following ways:

• Convenience: ACH payments are more convenient for customers and suppliers/vendors. You send and receive payments electronically, saving you the hassle of dealing with paper checks.
• Error reduction: ACH transactions require less manual input from personnel, which helps minimize errors
• Faster payments: ACH transactions are quick and straightforward to initiate and can be completed on the same day if necessary
• More efficient payables management: Switching to ACH centralizes payment info, reduces lost invoices, and simplifies tracking. Plus, automating ACH payments with tools like Ramp Bill Pay streamlines your AP process even more.
• Storage space: ACH transactions are digital, which can help you save space on physical storage solutions and security for physical records like paper checks
• Less mail: If your payments are all initiated through the ACH network, you can save money on postage costs
• Ability to automate: Paper checks allow partial automation but require manual steps. ACH payments, on the other hand, can be fully automated and integrated seamlessly with other software, minimizing human involvement.‍
• Increased security: A recent article in the ABA Banking Journal reports that while check use is down, check fraud is up. Although checks account for less than 9% of payments, they account for 66% of payment fraud. ACH payments help eliminate this risk.

Automate your AP process with ACH payments

Efficiently managing ACH payments is critical to creating a smoother, more reliable AP process, helping you cut down on time and costs. Here’s how Ramp makes it possible:

• Save time: Reduce processing time by 10 minutes per invoice by automating approval workflows and document matching. Ramp’s AI handles the heavy lifting to save you time and money.
• Simplify vendor setup: Consolidate your vendor onboarding into one platform, with secure bank verification links to ensure smooth payments every time.
• Choose your payment method: You can make payments via ACH, virtual cards, checks, or wire transfers.
• Reduce costs: Enjoy zero processing fees on domestic bill payments, keeping more money in your business.

Ready to see the difference? Ramp’s AP automation software eliminates manual steps, reduces errors, and streamlines vendor payments—all while keeping costs low.