There are numerous ways to learn about Automated Clearing House (ACH) payment processing. We’ve put together an easy-to-understand guide you can turn to when you have questions about ACH payments. Have a question that’s not outlined below? Check out our ultimate guide, which dives much deeper into ACH payment processing.
1. Looking at ACH Payment Processing Statistics (1)
- In the first quarter of 2018, there were roughly 5.7 billion ACH transactions. This is a 5.9% increase compared to the same quarter in 2017.
- Nearly 3.3 billion of the 5.7 billion transactions were debit ACH payments. 2.4 billion were credit transactions.
- 1.7 billion were direct deposit transactions.
- 1.4 billion were WEB transactions.
- 848 million were business-to-business payments.
- 28.7 million were peer-to-peer payments.
- 42.6 million were processed as same-day transactions, of which 20.6 million were debit payments and 22 million were credit payments. This was a 220% increase compared to the same time period in 2017.
- Same-day ACH debit transactions were made available starting in September of 2017.
- Same-day ACH credit transactions were made available starting in September of 2016.
2. How Long Does It Take to Process an ACH Payment?
ACH payments make it simple to transfer funds from one account to another, but they do come with the downside of taking up to 48 hours or longer to process. The transfers are by no means instant. At best, they can be processed in a 24-hour period of time, but this only applies when you conduct a same-day ACH transaction. Generally, the payment will take anywhere from 48 to 96 hours to complete.
3. Are ACH Payments the Same as Debit Card Transactions?
Debit card transactions remove funds from a person’s account and place it in another account, much the same as an ACH payment. These transaction processes, however, are very different. ACH payments go through the Automated Clearing House, whereas debit card transactions do not.
There is no need for a debit card number with an ACH payment. Instead, four numbers are needed: the routing number and account number of the payer’s checking or savings account, and the routing number and account number of the receiving party.
Debit card transactions are processed using a card network and can come with high processing fees when compared to ACH payments. Merchants pay a percentage of the total transaction as a payment processing fee. The exact amount depends on the transaction size and whether the debit card was present. Offline pin-based transactions are normally cheaper to process than online pin-based ones. Still yet, offline fees can quickly add up and eat into a merchant’s profit margins.
4. How Much Do ACH Transactions Cost?
You will pay either a flat rate or a percentage of the transaction when accepting or making ACH payments. If you process large ACH payments on a regular basis, it is usually best to choose an ACH processor that charges you a flat rate for each transaction, which usually ranges anywhere from 25 cents to $5.00 depending on functionality, level of automation, and the level of support provided.
For example: Even if an ACH processor charges $3 per transaction and your average transaction is $1,500, this is going to be significantly more cost-efficient than paying an ACH processor a fee of 1% for each payment, which would be $15 per $1,500 transaction.
5. What Is the ACH Funding Cycle?
ACH payments are often referred to as “three-day funding” due to the 72 hours that it normally takes to process them. It is during these three days that a verification process will take place. The purpose of the verification is to ensure the funds are available in the customer’s account; this mitigates the risk of the ACH processor crediting funds to your account and then having to debit your account because the funds are not available in the customer’s account.
6. What Is Initiation Day?
When an ACH payment is initiated, this is known as “Initiation Day.” There will be roughly three days that pass before the transaction is complete. For example: If an ACH payment is initiated on Tuesday, it will go through processing on Wednesday and Thursday, settle on Friday, and depending on your bank, it will post to your account either on Saturday or Monday. Any time an ACH payment is initiated after 5 p.m. Eastern time, it will not be sent to the ACH operator until the next business day.
7. How are ACH Payments Processed via the ACH Network?
Creating a business environment that supports ACH transfers is simple. Most vendors already accept them, especially online businesses. These payments are secure and reliable. You will first need to decide whether you want the ACH payment to be single-entry or reoccurring. A one-time ACH payment can be made as an ACH debit or credit transaction. After you have provided your ACH operator with the vendor’s account information, you will be able to electronically transfer funds to its account.
You must give permission to the vendor to electronically withdraw funds from your account. If it’s going to be a recurring payment, you must provide permission as to the date and the amount of funds that can be withdrawn. If the amount is going to differ from one payment to the next, this will be outlined in the ACH enrollment form.
Make website ACH payments: If you purchase items from vendors online, you may be able to make payments via an ACH WEB method versus PayPal. Most vendors prefer WEB ACH payments over PayPal payments due to PayPal’s high transaction fee. Accepting PayPal payments will cost a vendor a certain percentage of the total transaction. For example, if the percentage is 3%, then PayPal will keep $3 for every $100 transaction. With ACH WEB payments, the vendor is likely to only pay 25 cents to $5 a transaction, which is considerably less expensive when the transactions are large.
Use computer or terminal payments: For businesses that normally process payments over the phone or by mail, a virtual terminal or processing service can be used to process ACH payments. The virtual terminal can be accessed via a computer or mobile device. You simply type in the vendor’s account and routing numbers and initiate the transaction.