What is ACH credit? How ACH credit transactions work

An ACH credit, often called ACH deposit or direct deposit, is a payment that's "pushed" from one bank account to another using a U.S. banking network known as the Automated Clearing House Network (ACH network).

ACH credits explained

ACH credits are push transactions. This means the person making the payment pushes the money from their bank account to someone else's. For example, when an employer pays its employees by depositing electronic payments into their checking accounts, those are push transactions.

In addition to paychecks, ACH credits can also include government benefits, refunds, or withdrawals from payment services like Venmo.

ACH debits explained

By contrast to ACH credits, ACH debits are funds that are "pulled" in. In other words, the person making a payment allows the person they're paying to withdraw money from their account. There are two ways to set up a pull transaction. First, the payer can give the recipient an authorization form with their checking account number, routing number, how much money the recipient can withdraw, and when. The recipient then sets up the electronic funds transfer on their end. Second, the recipient can create an online portal where the payer can add their banking information and authorize the ACH debits.

ACH debits are commonly used for recurring payments like electric bills and mortgage payments. The person making the payments gets the convenience of having their bills automatically paid from their checking account every month. The company receiving the payments saves money on manually processing payments.

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How do ACH credits work?

Every Automated Clearing House payment (ACH payment) runs through the U.S. clearing house system, a network of United States financial institutions. The network includes the Federal Reserve and is overseen by the National Automated Clearing House Association (NACHA.) The ACH network is primarily used to make domestic electronic payments between U.S. banks and credit unions.

Each person or business has to authorize the funds transfer. This includes both the party making the payment and the party receiving the money. You can't move money to or from someone else's bank account without their formal permission. In addition, many authorization forms allow the payer to take money back if they send too much in error.

Once the authorization is complete, whoever is initiating the transfer instructs their financial institution to either push the funds out (an ACH credit) or pull the funds in (an ACH debit). This can be done manually or set up as a recurring transfer. Behind the scenes, the originating depository financial institution batches all of its ACH transfer requests together and sends them to a clearinghouse that verifies the transfers. The clearing house then sends each transfer to the receiving depository financial institution. ACH transfers have customarily taken two to five business days to complete, but same-day ACH payments are becoming more and more common.

Who uses ACH credits?

Businesses use ACH credits to deposit paychecks and benefits for workers. They also pay recurring bills and send one-time payments with B2B ACH transfers. Using ACH saves time and is more secure than sending paper checks.

Consumers don't usually have the ability to initiate ACH credits except for online banking transfers to their own accounts. For example, people commonly send money from their checking account to a savings account at another bank. Since companies still like the convenience of the ACH network even when dealing with consumers, they usually set up a system for ACH debits to let customers "set it and forget it," so the company gets paid automatically each month.

In each direction, whether sending or receiving funds, ACH payment processing is easy, cheap, and convenient.

Fees for ACH debit transactions and ACH credit transactions

When you pay someone by ACH credit, the processing fees are very low. The cost to the sender is usually less than the cost of printing and mailing a check. There is usually no cost to the receiver, but you should be aware that some business checking accounts do charge fees based on the total number of transactions or transaction volume.

Vendors usually love companies that pay by ACH credit. They don't lose 3% of their invoice in credit card fees, and they don't have to manually deposit a check. ACH payments are also more secure for vendors since they don't have to worry about a check getting lost in the mail or stolen from their drop box.

But the best thing about ACH is that the small fees are nothing compared to how much time you save. Instead of printing, signing, and mailing a ton of physical checks every month, you can pay those bills digitally with a few clicks. You can also manage your recurring bills through automation, so you only have to get approvals for one-time payments or bills that exceed your approval limits.

ACH vs. eCheck: What's the difference?

An eCheck is the same as an ACH debit. That's when you're pulling funds into your account. That might sound confusing since a check is sending someone money, but think of the electronic check as your authorization to take money out of the payer's account.

Consumer-oriented businesses use eChecks as a service to their customers as well as a cost-saving measure. An individual customer can set up their account to make automatic payments every month. The customer knows their payments will be timely, and the business enjoys all the benefits of recurring billing and automatic debit of those receivables.

ACH vs. direct payment: What's the difference?

Direct deposit, or direct payment, is just another term for an ACH credit. Again, that's when your ACH transaction is pushing funds out of your account.

Some of the most common types of direct deposits include electronic tax refund payments from the IRS and Social Security payments for retirees. ACH direct deposit is also used in certain types of business-to-business money transfers like paying consultants or suppliers.

The BILL difference

BILL is more than an ACH service provider. It's an intelligent business payments platform.

When you fill out your banking information in the BILL app, your vendors don't see it giving you added security. Your vendors' account information is also protected. Instead of sharing banking information, the system allows you to connect to each other to send and receive payments. It's similar to how you can connect with friends and family on services like Venmo without seeing their banking information.

Merchants and vendors can email invoices directly to the system. BILL sends you a notice that the bill arrived, and BILL Artificial Intelligence reads the invoice and enters the details into the system for your review, all before you've ever lifted a finger.

You can set up different governing workflows for different bills and accounts. So you can pay your utility bills every month automatically but require two separate approvals to handle a large, one-time purchase. Whatever rules you set up, BILL routes each bill through the right billing process.

And, when you do need approvals, you can request them no matter where your team is. The BILL app is a cloud platform that lets your whole finance team securely log in from any location.

Who can BILL help?

Corporate finance teams love BILL for the extreme efficiency and convenience of digital organization. All communication is stored in one place, from invoice to questions to bill payment, and payments go out in batches that make your monthly close a snap.

Accountants love it for the transparency of the permanent audit trail that captures every touchpoint and transaction. In addition, BILL syncs with most major business accounting software, automatically keeping your books up to date and reducing the chance of human errors.

Security teams love it because every charge, authorization, and transaction runs through BILL. Your account is debited and credited without sharing your information.

Better yet, with BILL, you can make ACH payments or virtual credit card payments, send wire transfers, or even send paper checks (we'll print and mail them for you) from one convenient system.

Set up ACH payments in BILL today with our risk-free trial.

"BILL helps us efficiently manage large volumes of payments in a controlled environment - which our auditors love! Our vendors appreciate the ability to securely provide banking details through a PCI compliant platform." — Kassie Hargurth, Head of Accounting, ClearCover

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided “as-is”; no representations are made that the content is error free.