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ACH Payment

Automated Clearing House (ACH) uses its network for bank to bank electronic money transfer in the USA. Users can transfer money from their bank account to any other bank account using ACH Payment facility.

What Is ACH?‍

ACH stands for Automated Clearing House. It is a subsidiary of the National Automated Clearing House Association (NACHA), which electronically transfers funds from one place to another. The purpose is to promote and support growth within the USA of payroll, direct deposit, bills, and other payments electronically. 

ACH transactions can also be referred to as eChecks or Electronic Funds Transfers (EFTs). 

How Do ACH Payments Work?

The ACH Network supports individuals, businesses, and the government from transferring money from one bank account to another. 

In order to initiate a transaction, the individual or entity first makes a payment or direct deposit using the ACH network. Their financial institution or bank then takes the money to be paid and sends it to either the Federal Reserve or a clearinghouse. This is done in batches with other ACH payments and sent at scheduled times throughout a day. 

These payments are then sorted by the receiver (the Federal Reserve or the clearinghouse) to make sure that there has been proper authorization of funds by the bank or financial institution. Once complete, the intended recipient receives the funds to their account. 

What Are Examples of ACH Payments?

Although there are many situations in which the ACH network can be used to make payments, a few examples are:

  1. Employee’s paid by direct deposit
  2. Automatic payments set up online
  3. Funds transferring from one account to another

How Do You Complete ACH Payments?

In order for an ACH payment to work, the receiver must provide their account information to the sender. As an example, when starting a new job, your employer will collect your bank information for direct deposit as part of the onboarding process. This provides them the information necessary to send your check via direct deposit over the ACH network. 

The type of information required is usually:

  1. Name of Bank or Financial Institution
  2. Type of Account (Checking vs Savings)
  3. The ABA Routing Number
  4. The Account Number

When Should You Use ACH Payments?

There are multiple situations in which ACH payments are appropriate. Typically, if a paper check is currently being used, payments via ACH transfer will be a suitable, and more convenient, option. 

Recurring or standard payments, like rent, utilities, payroll, etc., ACH provides an excellent, secure, and easy way to transfer funds and make necessary payments. 

However, since ACH payments and transfers are processed in batches and at scheduled times during the day, urgent or time-sensitive payments might not be the best fit. Additionally, anyone or any entity concerned about inaccurate information or potential bounced payments, ACH is also not suggested. 

For almost all other situations, though, the ACH Network allows senders an easy process that is typically cheaper and more eco-friendly than paper checks. 

Conclusion

The Automated Clearing House (ACH) has improved the process for making payments or transferring money, as it does not require any in person transactions. Businesses or individuals looking to make a transaction are able to do so electronically, without having to go to a bank to withdraw money or deposit a check. 

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