What is an ACH payment? A complete guide to ACH transfers

ACH payments are a dependable and cost-effective way to move money, optimize workflows, and maintain financial stability. As one of the most popular payment methods for businesses, ACH payments offer a streamlined alternative to traditional options like checks and wire transfers.

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This guide simplifies everything you need to know—types of transfers, setup tips, costs, and more—so you can decide whether ACH is the right fit for your business.

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Here’s how we’ve structured this guide to make ACH payments easy to understand:

• Chapter 1: Definition, types of ACH transfers, and use cases
• Chapter 2: How ACH payments work and how long they take
• Chapter 3: ACH costs and alternatives
• Chapter 4: How to set up ACH payments
• Chapter 5: Considerations for choosing ACH payments

Chapter 1: Definition, types of ACH transfers, and use cases 

Understanding ACH payments starts with defining what they are, exploring the two main types—ACH credit and ACH debit—and learning how businesses commonly use them to streamline transactions. Let’s dive in.

What is an ACH payment?

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ACH payments are faster and more affordable than checks or wire transfers, making them a reliable option for businesses. Whether you're processing payroll, paying vendors, or collecting recurring payments, ACH payments power seamless, bank-to-bank transfers that save time and money.

What are the different types of ACH transfers?

Now that you understand the basics, let’s explore the two main types of ACH transfers:

1. ACH credit (push transfer): Funds are “pushed” from your account to another. Common examples include paying vendors or sending direct deposits to employees.
2. ACH debit (pull transfer): Funds are “pulled” from another account when customers authorize payments. This is ideal for recurring payments, such as subscription services or utility bills.

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ACH credits and debits essentially cater to different needs, depending on whether you’re sending or receiving funds.

Clarifying terms related to ACH payments

It’s easy to confuse ACH payments with similar financial terms, so let’s clear up a few key distinctions:

• Direct deposit: Direct deposits are a type of ACH credit specifically for depositing funds directly into a recipient’s account, commonly used for payroll or government benefits.
• EFTs: ACH transfers are a subset of Electronic Funds Transfers (EFTs), which include other types like wire transfers or card payments.
• Bill payments: Not all bill payments are ACH transfers. Payments can also be made via checks, credit cards, or other methods.

Common use cases of ACH payments

ACH payments are widely adopted across industries for their efficiency and reliability. Common applications include:

• Payroll: Businesses use ACH credits to process direct deposits for employees.
• Government benefits: Programs like Social Security or unemployment benefits often rely on ACH transfers.
• Tax refunds: The IRS uses ACH payments to issue refunds quickly and securely.
• Recurring payments: Subscription services and utilities benefit from the efficiency of ACH debits.
• B2B transactions: Businesses pay vendors directly through ACH, simplifying accounts payable processes.

Chapter 2: How ACH payments work and how long they take

ACH payments might sound complex, but their process is straightforward once broken down. Here’s how money moves seamlessly through the ACH network, step by step, with the key players that make it all possible.

Key parties in an ACH transaction

Every ACH payment relies on five critical participants working together to move funds:

• Sender: The individual or business initiating the payment.
• Originating Depository Financial Institution (ODFI): The sender’s bank, responsible for submitting the transaction to the ACH network.
• Federal Reserve Banks: Intermediaries that process and sort ACH batches within the network.
• Receiving Depository Financial Institution (RDFI): The receiver’s bank, which processes incoming payments and credits the receiver’s account.
• Receiver: The individual or business receiving the funds.

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These participants form the backbone of the ACH network, ensuring every transaction is accurate, secure, and compliant.

Step-by-step: How ACH payments are processed

ACH transfers follow a structured workflow that ensures smooth and safe transactions. Here’s how it works:

1. Initiating the transfer: The sender requests the transfer through their bank or payment platform, providing the receiver's ACH details.
2. Submission by the ODFI: The sender’s bank (ODFI) submits the payment entry to the ACH network.
3. Batch processing: ODFIs group multiple ACH entries into batches, which are sent to Federal Reserve Banks multiple times daily during business hours.
4. Sorting by the ACH Network: Federal Reserve Banks sort the batch entries into categories (e.g., push vs. pull payments) and forward them to the appropriate RDFI.
5. Verification by the RDFI: The receiver’s bank verifies that the sender’s account has sufficient funds.
6. Funds transfer: Upon successful verification, the sender’s account is debited, and the receiver’s account is credited.

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While ACH payments rely on batch processing instead of real-time transactions, they are highly safe. To maintain security, NACHA enforces strict compliance and data protection standards, with significant penalties for violations.

How long does an ACH transfer take?

ACH payment processing usually takes 1-3 business days, depending on the timing of your request and your bank’s processing schedule, as ACH debits are processed in multiple batches throughout the day. 

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If you need a faster option, Same-Day ACH can clear funds within a single day as long as the transfer request is submitted before the cut-off time (usually mid-morning). This faster option is becoming more accessible as  NACHA continues to update its guidelines and banks adopt advanced technologies.

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However, while ACH transfers are reliable, certain factors can occasionally slow the process:

• Insufficient funds: If the sender’s account balance is too low, the RDFI will reject the transaction and issue a rejection code.
• Additional verification: Some payments may require extra review for security or compliance reasons, leading to an ACH hold that extends processing times.

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It’s worth noting that services like Zelle, while sometimes mistaken for ACH payments, operate on a different network. Zelle specializes in instant, smaller, person-to-person transfers and isn’t suitable for high-volume business transactions.

Chapter 3: ACH costs and alternatives

When evaluating ACH payments, it’s crucial to understand the fees involved and how they compare to alternatives like wire transfers. Here’s a closer look at what to expect.

How much do ACH payments cost to accept?

The cost of accepting ACH payments varies depending on your service provider and their pricing structure. Here’s a typical breakdown:

• Per-transaction fees: $0.25–$1.75 per transaction or 0.5–1.5% of the transaction amount
• Internal processing fees: Around $0.29 per transaction
• Monthly maintenance fees: Typically $20 per month
• Batch processing fees: $1 per batch of transactions
• ACH return fees: $2 per failed transaction

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Some ACH processors adjust fees based on factors like your transaction volume, business type, or payment frequency. Others might offer free push (sending funds) or pull (receiving funds) payments but charge for the opposite type, so clarifying the fee structure upfront is essential.

Comparing alternatives: ACH vs. wire transfers

ACH payments aren’t the only option for electronic transfers, so how do they stack up against wire transfers? To keep it short, they differ significantly in:

• Speed: Wire transfers are nearly instant, while ACH transfers typically take 1–3 business days.
• Cost: ACH payments are far cheaper, making them ideal for businesses managing tight budgets. Wire transfers often have higher fees, especially for international payments.
• Automation: ACH payments excel at handling automated, recurring transactions, a must-have for businesses managing subscriptions or regular vendor payments. Wire transfers, on the other hand, are usually one-time transactions.
• Flexibility: ACH payments can push or pull funds, while wire transfers are limited to push-only.

What other alternatives are available?

If neither ACH payments nor wire transfers align with your needs, consider these options:

• Credit card payments: Faster but more expensive due to higher transaction fees.
• Checks: Traditional, but slower and less secure than electronic methods.

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When choosing a payment method, focus on your business’s priorities. Cost, speed, and scalability are often the most important factors to weigh.

Chapter 4: How to set up ACH payments

Setting up ACH payments for your business is simple when broken down into manageable steps. Here's how to get started.

How to set up and accept ACH payments

To start using ACH payments, your business needs to partner with a financial institution or payment processor that supports ACH transactions. Most banks and payment platforms offer ACH capabilities, but it’s important to choose one that aligns with your business’s needs.

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Here’s what the typical setup process looks like:

1. Open an ACH-enabled account: Confirm with your bank or payment provider that your account supports ACH transfers.
2. Verify account information: Validate the details of your account and the accounts you’ll be transacting with to avoid errors.
3. Sign an ACH agreement: Most providers will require you to sign an agreement outlining responsibilities, risks, and fees.
4. Configure payments: Set up your system to handle recurring payments (e.g., for payroll or subscriptions) or initiate one-time payments for vendors and customers.

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Once these steps are complete, your business is ready to start accepting and making ACH payments.

Choosing and working with ACH or third-party providers

For businesses managing high volumes of ACH payments or requiring advanced features like Same-Day ACH, partnering with a third-party provider can simplify operations and enhance cash flow management.

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When evaluating providers, consider these key factors:

• Fees and pricing: Compare transaction, batch processing, and maintenance fees to find the most cost-effective solution.
• Processing speed: Look for providers that offer Same-Day ACH for faster payments.
• Security features: Ensure the provider complies with NACHA’s guidelines for fraud prevention and data protection.
• Integration options: Check for seamless compatibility with your accounting or enterprise software.

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Third-party providers can offer additional flexibility for businesses, making it easier to manage recurring payments and optimize cash flow.

Chapter 5: Considerations for choosing ACH payments

ACH payments are a cost-effective, reliable, and automated solution for businesses managing recurring transactions like subscriptions, payroll, or monthly billing. However, they may not be the best fit for businesses requiring international transfers or those that rely heavily on credit-based transactions.

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To determine if ACH payments align with your business needs, let’s break down their benefits, limitations, and how automation can maximize their value.

Benefits of ACH payments

ACH payments offer several key advantages that make them a popular choice for businesses:

1. Cost savings: ACH payments are far more cost-effective than credit card transactions or wire transfers, which often come with higher fees.
2. Automation: With ACH, businesses can automate recurring payments like subscriptions or payroll, reducing manual workload and errors.
3. Reliability: ACH payments operate on a predictable schedule, ensuring funds are processed consistently within 1–3 business days.
4. Security: Governed by NACHA’s compliance rules, ACH payments are highly safe and minimize the risk of fraud when compared to traditional checks.
5. Cash flow management: Automating vendor and bill payments through ACH ensures better control over monthly expenses and improves cash flow visibility.

Limitations of ACH payments

While ACH payments have many benefits, there are a few limitations to consider:

• Error codes and fees: Errors in processing, like debiting outdated bank information or handling canceled subscriptions, can result in additional fees. To avoid this, ensure bank details are regularly updated and transactions are validated.
• Domestic-only transfers: ACH payments are limited to U.S.-based accounts, so they’re not suitable for businesses requiring international transfers.
• Lack of credit functionality: Unlike credit card networks, ACH payments do not support issuing partial refunds, credit notes, or temporary holds on funds.

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Understanding these limitations helps businesses evaluate whether ACH is the right fit for their operations.

Automating ACH payments for greater efficiency

One of the greatest strengths of ACH payments is the ability to automate them. Automation reduces administrative workload, minimizes errors, and ensures payments are processed on time.

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Here are a few key use cases:

• Subscriptions and memberships: Automatically process recurring charges, ensuring timely payments without manual intervention.
• Payroll: Schedule recurring salary deposits, saving time on monthly payroll runs.
• Bill payments: Automate vendor and utility payments to maintain consistency and avoid late fees.

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With the right tools, automation makes ACH payments even more efficient, helping businesses save time and maintain better cash flow control.

Automate your accounts payable with ACH payments

Managing accounts payable processes for a small business can get complicated quickly. ACH debit transactions help you automate vendor payments, but most service providers don’t integrate them with broader AP workflows.

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‍Ramp’s corporate cards with accounts payable software lets you:

• Save time: You can save 10 minutes per invoice by digitizing approval workflows and automating document matching. Ramp's AI engine takes care of everything, saving you time and money.
• Streamline vendor setup: Centralize vendor onboarding and verify bank account information to make sure your payments go through. Vendors can verify their information via a secure link.
• Pay with multiple channels: Pay however you want with Ramp—through ACH, virtual credit cards, checks, or wire transfers.
• Save money: Ramp doesn’t charge processing fees for domestic bill payments.

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Try Ramp's accounts payable software. Simplify payments, improve cash flow, and keep your business running smoothly.