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The ultimate guide to ACH transfers and how they work

Small business owners are constantly looking for ways to speed up both collection and payment processing. One way to promote efficiency in your payments is to set up ACH transfers and ACH payments. 

As a business owner, you’ve probably heard the term ACH, but do you know what it really entails? This article will guide you through the ins and outs of ACH transactions, giving you the ability to decide for yourself if implementing ACH transfers is right for your business. 

What is ACH?

What does ACH mean is a common question that most business owners have. ACH, meaning Automated Clearing House transfers, are bank-to-bank transfers that are processed through the Automated Clearing House. Financial institutions control the transactions between bank accounts, which are often completed in batches.

You may already have ACH transfers set up in your business if you offer employees direct deposit or use third-party payment apps, such as Zelle and Venmo. This transaction method is common when it comes to sending payments or receiving money from online sources. 

The popularity on both the business and consumer side makes it crucial to consider adding this transfer method to your list with the ACH Network, showing that 7.5 billion payments were processed in the second quarter of 2022.

What are the different types of ACH transfers?

There are two main types of ACH transfers: debits and credits. Each of these methods allows your business to skip waiting days for checks to clear, giving added transparency into business operations and boosting cash flow management

ACH direct debits

ACH direct debits involve money being pulled out of your account. This type of transfer is frequently referred to as an ACH payment. Common uses for direct debits include direct depositing employee paychecks, submitting retirement funds, and paying other businesses. 

ACH direct credits

The other type of ACH transfer is direct credit. This type of transfer occurs when your business receives money. Tax refunds and customer payments are two common examples of ACH direct credits. Similar to the bank statement, these remittances will be found in the credit column, otherwise known as deposits. 

How do ACH transfers work?

Each ACH transfer comes with a data file that contains important information, such as bank account numbers, delivery dates, and amounts. This file is sent from your financial institution to the clearing house. After the transfer goes through the clearing house, it will be sent to the recipient’s bank where the funds will appear. Here are some key people you should know:

  • Originator: This is the person or business that initiates the transfer.
  • Recipient: This is the person or business that receives the transfer.
  • Clearing House: This is the middleman in the process.

In some cases, you can initiate payments from your end. For example, when you bill a client through ACH, you are acting as the originator and recipient; however, you must be sure you have permission to pull the funds before you initiate the payment. 

How long do ACH transfers take?

ACH transfers are sent through the Clearing House in batches at regularly scheduled intervals. Since the financial institutions handle the processing of transactions, ACH transfers generally clear during normal business hours. This means if you send an ACH after 5:00pm, you can expect to wait until the next day for it to clear. Additionally, ACH transactions won’t clear on holidays or weekends.

For ACH credits, the delivery time ranges anywhere from the same day to two business days. Transactions can also be scheduled. For example, if one of your suppliers wants their payment pulled next week, you can schedule the transaction for that day. ACH debits are generally processed the next business day.

The National Automated Clearing House Association, commonly referred to as Nacha, oversees the clearing of ACH transactions. The time it takes for the money to reach the recipient varies based on the transaction volume for the day and on the financial institution. Nacha also allows for same-day payments, but the processing speed depends on your bank.

What is the cost of ACH transactions?

The costs of ACH transactions depend on your financial institution. You can expect to see rush fees charge for same-day processing, but 1-2 day processing is usually free. The dollar amount of the ACH can also impact the ACH transaction cost. Moreover, bill payments, direct deposits, and predetermined transfers generally come free of charge. 

For credit transfers, a fee of around $1-$3 is common. Furthermore, the recipient is not charged a fee when receiving any transaction. The sender is the one responsible for any fees. Keep in mind that the fee structure will differ based on which financial institution you are using.

The 6 main benefits of using ACH

ACH provides an abundance of benefits for your small to medium-sized business, including:

1. Convenience

The first benefit of ACH payments is convenience. Most businesses run with online banking apps and cloud-based programs. Writing a manual check creates a disconnect in your electronic data. Instead of having to remember to add a manual check to your software and make sure it clears, ACH transfers can remove this burden.

2. Quick processing speeds

We touched on the processing speeds of ACH transactions before. The ability to have payments and deposits clear on the same day is vital to give your business added flexibility. Maybe you forgot to submit payroll for your employees or you remember that an invoice is due that day. Whatever the case may be, having the option to send payments on short notice is highly beneficial.

3. Cost efficient

ACH transfers also come with lower processing costs compared to other options, such as wire transfers, credit transactions, and checks. ACH payments are usually free, depending on the timeframe you select. However, even when fees are charged, these are generally under $10 per transaction, whereas credit cards charge a fee based on the dollar amount.

Let’s say your credit card charges a 2% fee for payments made to suppliers. On a $1,000 order, you are paying $20. This adds up when you factor in the different vendors and businesses you pay on a regular basis. Choosing ACH transfers allows you to reduce costs and improve your profitability.

4. Secure

ACH payments are heavily regulated by financial institutions and the Clearing House. This results in more security for your payments. According to a report by Actimize, paper checks are highly susceptible to fraud, with check fraud up by 106% in 2021. Why put your business at risk when there’s a better solution?

The speed of ACH transactions also gives your business more assurance that the money was sent and received. Most transactions come with an estimated delivery date that you can share with the recipient, providing transparency throughout the process. Checks can take days or weeks to reach the final destination, if they even make it there. This not only is a security issue, but also opens the door to late payments. 

5. Traceable

Another benefit of ACH transfers is that they are traceable. Most transactions come with confirmation when the party initiates the payment or deposit, when the money moves to the Clearing House, and when the funds are pulled or placed in the recipient’s account. This allows you to have a clear trail of the money to fall back on if there are issues.

6. Reversible

Despite the quick transfers, ACH payments are reversible. Wire transfers have very little clarity in the delivery of funds and cannot be reversed. On the other hand, ACH transfers are reversible and users are authenticated before to prevent fraud. If your business accidentally sends funds to the wrong business or collects payments from the wrong customer, you can rest assured that the transaction is reversible.

The limitations of ACH transfers 

ACH transactions do come with limitations that need to be considered as well before you implement this method into your business.

Transfer limits

One of the top disadvantages of ACH transfers is bank-imposed limits. The financial institution you bank through will most likely have a dollar limit that you can’t exceed on a daily basis. This means that for large payments, you may need to use a wire transfer or another method. Sometimes banks allow you to exceed the limit but impose additional fees. It’s best to talk with your bank to determine the specifics related to your situation.

Cutoff times

ACH transactions are only processed during normal business hours. This means that you aren’t able to submit a same-day transfer at 5 pm. Additionally, any days when the bank is closed means you can’t have same-day transfers. This can create an issue if you frequently issue same-day transactions. It’s best to plan an extra day or two for the arrival of ACHs to account for cutoff times. 


Although most transfers come with little to no fees, depending on the delivery time, you still want to keep potential fees in mind. Financial institutions have their fee schedule readily available for you to go through.

International restrictions

There also may be international restrictions on your ACH transactions. Certain financial institutions limit the dollar amount and place you can send money. This can be an issue if you frequently engage in international business or have clients located overseas.

Are ACH transfers the same as wire transfers?

ACH transfers are not the same as wire transfers. Wire transfers are another type of bank-to-bank transfer, but these transactions are often more expensive. While ACH transactions can take up to a few days, wire transfers are instant, arriving in your bank account in minutes. Due to the increase in speed, wire transfers are more expensive, with fees between $20 and $30 for both the sender and recipient. 

ACH transactions also give more information about the whole process. In a wire transfer, on the other hand, there is no way to confirm the recipient after the funds have been sent. This can lead to problems if you accidentally wire payments to the wrong recipient. Wire transfers are best for large sums and time-sensitive transactions, while ACH transfers are great if you have a few days of lead time.

How do you get started using ACH?

Understanding what an ACH payment is is often the first step in implementing this payment method in your business. First, reach out to your financial institution to learn about daily limits, transaction volume limits, and fees. If you find that your current bank doesn’t offer you favorable terms, it might be time to open a new account.

Next, decide what areas of your business you are going to use ACH for. Are you going to switch employees to direct deposit? How about offering ACH as a payment method for your vendors and suppliers? Finding out which areas you are going to implement ACH is important to properly set up the backend information.

Maximize the benefits of ACH with Melio

Managing your ACH transactions is vital to retain full control over the payments flowing in and out of your bank. Once you have effective control over your transfers, you will be able to maximize the benefits of ACH transactions. One way to do this is to work with an outside resource that promotes management and oversight capabilities.

Melio gives small businesses the flexibility to pay vendors, suppliers, and contractors exactly the way they want, including ACH at no additional cost. By using a dedicated solution for your ACH payments, you can gain full transparency over your transactions, which will help your business grow

Skip the trouble of writing checks by hand and join the thousands of businesses that are taking advantage of ACH transfers instead. Sign up for Melio today.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.

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