What is an ACH payment? How it works, process, and costs

ACH payments power billions of transactions every year, yet many people don’t fully understand how they work. Whether you’re receiving a direct deposit from your employer, paying your utility bill online, or transferring money between accounts, ACH (Automated Clearing House) transactions make these processes seamless.

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In this guide, we’ll break down everything you need to know about ACH payments—how they work, who uses them, and why they’re an essential part of modern banking.

What is the Automated Clearing House (ACH) network?

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Instead of relying on paper checks or manual processing, ACH allows money to move digitally between accounts, making payments faster, more secure, and cost-effective.

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The ACH network is managed by Nacha (National Automated Clearing House Association), which sets the rules and standards for processing these payments.

What are ACH payments?

An ACH payment is a type of electronic money transfer that moves funds between bank accounts using the ACH network. These payments, sometimes called direct payments, are commonly used for payroll deposits, bill payments, and bank-to-bank transfers.

Who uses ACH payments?

ACH payments are widely used across various industries and for personal transactions. Here’s who benefits from them:

• Individuals: Used for direct deposit paychecks, online bill payments, tax refunds, and peer-to-peer money transfers.
• Businesses: Companies use ACH to pay employees, process customer payments, and manage vendor transactions.
• Government agencies: The IRS and Social Security Administration use ACH to send refunds, benefits, and other payments.
• Financial institutions: Banks and credit unions process ACH transactions for customers, including loan payments and account transfers.

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By providing a low-cost, reliable, and automated payment solution, ACH continues to be one of the most widely used financial networks in the U.S.

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How ACH payments work: The process every business should know

ACH payments allow businesses to send and receive funds electronically, reducing reliance on paper checks and credit card fees. They follow a structured process:

1. Transaction initiation: A business (payer) authorizes an ACH payment by providing its bank with details such as the payee’s account number and routing number.
2. Batch processing: ACH payments are processed in batches rather than individually, making them more cost-efficient than wire transfers.
3. Clearing and settlement: Banks and payment processors verify and process the transaction, ensuring funds move securely between accounts.
4. Funds deposited: The recipient (vendor, employee, or partner) receives the payment within 1–3 business days, or the same day if same-day ACH is used.

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Because ACH transactions are automated, they minimize human errors, speed up reconciliation, and reduce operational costs compared to manual payment methods.

How to send ACH payments as a business

If your business is paying employees, vendors, or service providers via ACH, here’s how the process works:

1. Set up ACH payment capabilities: Partner with a bank, payment processor, or payroll provider that supports ACH transactions.
2. Obtain payee authorization: Businesses must get written or digital consent before initiating ACH debits.
3. Initiate the payment: ACH transfers are made through bank portals, accounting software, or third-party payment processors.
4. Processing and completion: Payments are processed in batches and typically clear within 1–3 business days.

How to accept ACH payments from customers

For businesses accepting recurring payments, invoices, or subscriptions, ACH is a cost-effective alternative to credit card payments. Here’s how to set it up:

1. Open an ACH merchant account: Work with a payment processor or business bank that offers ACH capabilities.
2. Collect customer authorization: Customers must agree to ACH debits via a signed authorization form or digital approval.
3. Process ACH payments: Payments can be scheduled automatically for recurring billing (e.g., SaaS subscriptions, utilities, memberships).
4. Receive funds: Once processed, funds are deposited directly into your business account, often with lower fees than credit cards.

The different categories and types of ACH payments

Understanding the structure of ACH payments is key to using them effectively. Here's a breakdown of each category and type.

Direct deposit vs. direct payment

ACH transactions fall into two main categories, ACH credits and debits, each serving different business needs. In more detail:

• ACH direct deposits (ACH credits): Businesses use ACH direct deposits to send money to individuals or vendors. Examples include payroll processing, tax refunds, and vendor payments.
• ACH direct payments (ACH debits): Businesses use ACH direct payments to pull money from a customer’s bank account. This is commonly used for recurring billing, subscription services, and B2B transactions.

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For businesses, understanding the difference is essential. If you’re paying employees or vendors, you’ll use ACH direct deposits. If you’re collecting payments from customers, you’ll set up ACH direct debits to automatically withdraw funds from their accounts.

Common types of ACH payments for businesses

ACH transactions power a wide range of business operations. Here’s how businesses typically use them:

• Payroll and employee payments: Employers send paychecks through ACH direct deposits.
• Recurring customer billing: Subscription-based businesses collect payments via ACH direct debits.
• Vendor and supplier payments: Businesses use ACH to pay vendors electronically, eliminating the need for checks.
• B2B transactions: Companies transfer funds between accounts without relying on costly wire transfers.
• Tax payments: The IRS and state governments accept ACH payments for estimated taxes and business filings.

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For businesses handling high-volume payments, ACH reduces costs, increases efficiency, and automates transactions compared to manual payment methods.

Processing ACH payments times: How long do they take?

ACH payments are not instant; they are processed in batches, meaning funds do not transfer in real-time. The ACH processing time depends on when the transaction is submitted, bank processing schedules, and whether same-day ACH is used.

ACH processing timelines

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Most ACH transactions settle within one to three business days, but the actual time can vary based on bank cut-off times and weekends/holidays when ACH processing does not occur.

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For businesses, this means ACH payments require planning, particularly for payroll or vendor payments. If a payment needs to arrive by a specific date, businesses should account for processing delays and schedule transactions accordingly.

Same-day ACH: Faster processing with higher costs

Same-day ACH allows eligible payments to settle within hours rather than the typical 1–3 business days, but it comes with higher fees and transaction limits. Payments must be submitted before designated cut-off times, and the $1,000,000 per transaction cap (depending on the bank) applies. 

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While it can improve payroll processing, vendor payments, and cash flow management, limited availability and higher costs make it less practical for routine transactions. Businesses should weigh these factors before adopting same-day ACH as a standard payment method.

ACH processing fees: How much do ACH payments cost?

ACH payments are one of the most cost-effective payment methods for businesses, particularly for high-volume transactions. The cost of an ACH payment varies depending on the payment processor, financial institution, and transaction volume.

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Here’s a simple breakdown of how much they typically cost:

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Factors that affect ACH fees

1. Bank vs. third-party payment processor: Banks typically offer lower ACH fees, while third-party processors add markups.
2. Transaction volume: Businesses processing higher ACH volumes may qualify for discounted rates.
3. Same-day vs. standard ACH: Expedited payments often come with higher costs.
4. Returned transactions: If a payment fails due to insufficient funds (NSF) or incorrect account details, businesses may face return fees.

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Despite these fees, ACH payments are cheaper than credit card processing and significantly less expensive than wire transfers.

Are ACH payments safe?

ACH payments are highly secure, adhering to Nacha regulations that mandate encryption, fraud monitoring, and transaction verification. However, like any electronic payment system, fraud risks exist if businesses do not implement proper security measures.

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To reduce risks, businesses should require customer authorization for ACH debits, use account verification tools, and implement dual authorization for high-value transactions. Common fraud tactics, such as phishing scams and account takeovers, can be mitigated with multi-factor authentication, strong password policies, and real-time fraud monitoring.

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While ACH is generally safer than checks, maintaining strict security protocols is essential to prevent unauthorized transactions.

Understanding ACH Payment Rejection Codes

ACH transactions can fail due to insufficient funds, incorrect account details, or authorization issues. When this happens, businesses receive an ACH return code, which explains the reason for the failed transaction.

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Businesses should monitor ACH return codes and automate payment retries to minimize disruptions to cash flow.

ACH vs. other payment methods: Why do the differences matter?

Choosing the right payment method impacts a business’s costs, transaction speed, and overall efficiency. While multiple options exist, understanding the differences between ACH, wire transfers, and other electronic payments helps businesses make informed financial decisions.

ACH vs. wire transfers

ACH payments and wire transfers both move money electronically, but they differ significantly in speed, cost, and purpose.

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Businesses looking for cost-effective, automated, and secure transactions should prioritize ACH payments, while wire transfers remain the best option for urgent and large-dollar international payments.

Is an ACH transfer the same as an EFT?

ACH transfers fall under Electronic Funds Transfers (EFTs), but EFTs also include wire transfers, credit/debit card transactions, and peer-to-peer (P2P) payments.

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For businesses, ACH is the most cost-effective EFT option for handling payroll, vendor payments, and recurring billing. Unlike wire transfers, which settle instantly but come with high fees, ACH transactions are batch-processed, making them more affordable for high-volume, routine business transactions.

Can ACH payments be used for international transactions?

Standard ACH payments are limited to domestic transfers within the U.S., but some banks offer International ACH Transactions (IATs) for cross-border payments. IATs require additional compliance measures, including currency conversion, foreign exchange fees, and adherence to international banking regulations, which often result in longer processing times.

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Because of these complexities, most businesses use alternative international payment methods such as wire transfers, the SWIFT network, or third-party providers. For domestic transactions, ACH remains the most cost-effective option, while international payments are typically better suited for wire transfers or SWIFT-based solutions.

Which banks allow ACH transfers?

Most major U.S. banks and financial institutions support ACH transfers, but fees and processing times vary. For example, major U.S. banks and online-only banks typically process ACH payments within one to three business days. Some offer slightly faster processing, with most ACH transfers settling in one to two business days.

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While ACH is widely available, businesses should check with their specific bank for details on fees, cut-off times, and same-day ACH availability.

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Are ACH payments right for your business?

ACH payments provide a cost-effective, automated, and secure solution for businesses of all sizes, making them an essential tool for managing transactions efficiently. Whether you're handling recurring invoices, payroll, or vendor payments, ACH can help reduce costs, improve cash flow, and streamline financial operations.

How ACH benefits businesses of different sizes

• Small businesses: ACH reduces transaction costs compared to credit cards and checks while automating recurring payments, helping businesses streamline operations and focus on growth.
• Mid-sized businesses: ACH simplifies bulk payments, improves cash flow management, and reduces manual processing, making financial operations more efficient.
• Large enterprises: ACH supports high-volume transactions, lowers costs compared to wire transfers, and automates accounts payable and receivable, ensuring secure and compliant payment processing.

When ACH may not be the best fit

While ACH is a scalable and efficient solution for domestic payments, it may not be suitable for every situation:

• For real-time payments, wire transfers or RTP (Real-Time Payments) offer faster settlement
• For large international transactions, SWIFT transfers provide broader global reach
• For businesses handling U.S.-based payments, ACH remains the most cost-effective and widely used option

Why businesses choose ACH payments

ACH payments offer a scalable and predictable solution for companies handling high-volume transactions, reducing fraud risks and eliminating inefficiencies tied to paper-based payments. By adopting ACH, businesses can automate recurring billing, speed up payroll, and improve cash flow management—all at a fraction of the cost of credit card and wire transfer fees.

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 to simplify payments, improve cash flow, and keep your business running smoothly.