Though you may not be familiar with the term,  ACH payment processing, if you have ever sent or received money online, most likely it was through ACH services.

These ACH transfers play a big part in the majority of online bill payments, direct deposits, and other transfers that occur. Here’s a breakdown on how they work.

What is ACH transfer

An ACH transfer refers to any electronic movement of money between banks that goes through the Automated Clearing House network, which is one of the largest U.S. payment systems.  If you have sent money to friends and family, almost certainly your transfer provider used the ACH network.  In addition to person-to-person payments, these transfers are often used for bill payments, direct deposits,as well as payroll deposits from employers.

Types of ACH transfers

ACH processing are executed in two different ways which vary in delivery speed and cost. The first, ACH debit transactions, refers to money that is “pulled,” or debited from an account. For example, when you set up a recurring bill payment, the company who bills you can pull what is owed from your account each month.  The second, ACH credit transactions, allow you to “push” or send money electronically to accounts at different banks.

Delivery Time

Delivery of ACH processing can be completed as quickly as two or three business days.  How quickly an ACH transfer is executed is determined by ACH network operators.  Typically, they process transfers in batches at a specific time each day, with ACH debit transactions processed by the next business day and ACH credits within one or two business days. You should also keep in mind that total delivery time can vary, since some banks may keep transferred funds for a holding period.

The Costs

The costs for ACH debit transfers, including payroll direct deposits and most bill payments, are usually negligible. Conversely, with some ACH credit transfers, the bank might charge a small fee for sending money between differing bank accounts, which is something banks call an external funds transfer.

ACH Transfers vs. Wire Transfers

The main difference between ACH transfers and traditional bank wire transfers is the sizeable fee that wire transfers charge to both send and receive money. This additional cost and the longer transfer time is why many businesses tend to switch to ACH transfers for U.S. and international payments.

ACH transfers can be an inexpensive way to move money at both the business and individual level. It’s worthwhile to research the policies, timing, transfer limits, and other pertinent information before making the switch,so that you can get the most out of this service.