What are ACH payments and how does an ACH transfer work?

ACH transactions move through the banking system in batches at scheduled times throughout the day, not in real-time like wire transfers. This batch processing allows the system to handle billions of transactions while keeping costs low for businesses and consumers.

Several key players are involved in each ACH transaction. The Originating Depository Financial Institution (ODFI) initiates the transaction on behalf of the sender, while the Receiving Depository Financial Institution (RDFI) accepts and processes the payment for the recipient. NACHA sets the rules for all participants to follow, ensuring consistency and security across the network.

The process starts when a business gets proper authorization from the other party. For an ACH debit, like automatic bill payment, the company needs written or electronic permission from the customer to pull funds from their account. For an ACH credit, like payroll direct deposit, the employer pushes funds to employees’ accounts based on their provided banking information.

Once authorized, the originating bank collects ACH requests throughout the day and batches them. These batches are sent to an ACH operator, either the Federal Reserve or The Clearing House, at set times. The operator sorts the transactions and sends them to the receiving banks, which then credit or debit the individual accounts. Most ACH credits settle by the next business day, while debits must be processed within two business days according to NACHA rules.

Let’s look at a typical payroll scenario. An employer initiates direct deposits on Wednesday for Friday payday. The payroll provider sends the ACH file to the employer’s bank, which batches it with other transactions and sends it to the ACH operator Wednesday evening. The operator processes and distributes the transactions overnight and employees see their deposits Friday morning when banks update account balances.

ACH payments support a wide range of financial transactions that businesses and consumers rely on daily, from routine payroll to complex B2B invoicing. The versatility of the ACH network has made it the preferred method for recurring and high-value transfers where cost efficiency matters more than instant processing.

Direct deposit for payroll

Direct deposit represents the most visible ACH application, with the vast majority of American workers receiving wages this way. Companies initiate ACH credits to transfer salaries directly into employees’ bank accounts on a set schedule. This eliminates paper checks, reduces administrative costs and gets employees their money on payday. For businesses, automating payroll through ACH means fewer errors, lower labor costs in check processing and simplified record-keeping.

Consumer bill payments

Utility companies, mortgage lenders, insurance providers and subscription services offer automatic payment options that pull funds from customers’ bank accounts each billing cycle. These ACH debits are convenient for consumers who avoid late fees and missed payments while giving businesses predictable cash flow and lower collection costs. A typical household might have several ACH debits set up for monthly expenses, from electric bills to streaming services, all processing without manual intervention.

Business-to-business (B2B) payments

B2B ACH usage has grown significantly as companies look for alternatives to expensive wire transfers and slow paper checks. In 2024, businesses initiated over 7.3 billion B2B ACH payments for everything from vendor invoices to contractor payments. The ability to send large sums at minimal cost makes ACH attractive for companies with extensive supplier networks or regular commercial transactions. A manufacturing company might use ACH to pay dozens of suppliers monthly, saving thousands in wire transfer fees while streamlining accounts payable.

Person-to-person transfers

While often associated with consumer apps like Venmo or Zelle, many P2P transfers rely on ACH infrastructure behind the scenes. Even as faster payment rails emerge, many platforms use ACH for the actual movement of funds between bank accounts. This shows how the decades-old ACH system underpins modern payment innovations, providing a foundation for new financial technologies.

ACH payments take one to three business days to complete, a timeframe that reflects the batch processing nature of the system rather than technical limitations. This processing time, while slower than instant payment methods, is reliable and predictable for businesses to plan around.

Standard ACH transactions follow specific settlement windows according to NACHA operating rules. ACH credits (like payroll deposits) generally settle the next business day if initiated before the bank’s cut-off time. ACH debits (like bill payments and customer collections) must be processed within two business days. However, receiving banks may hold funds for a short time for risk management purposes which can extend the total time to five business days if weekends and holidays are involved.

The batch processing schedule drives these timelines. Banks collect ACH transactions throughout the day and submit them to ACH operators at set times, usually several times a business day. Unlike wire transfers that process continuously in real-time, ACH files move through the system in these scheduled batches. A payment submitted after the last batch of the day will not start processing until the next business day.

Same-day ACH has emerged as a faster alternative for time-sensitive payments. Introduced in 2016 and expanded since, same-day ACH allows qualifying transactions to clear by the end of the same business day for an additional fee. As of 2022, the per-transaction limit increased to $1 million, making same-day ACH viable for larger business payments. To use same-day service, transactions must be submitted before specific cut-off times, typically 10:30 AM and 2:45 PM Eastern Time.

Cut-off times matter. Most banks have daily deadlines, often between 3:00 PM and 6:00 PM local time, for accepting ACH transactions. Payments submitted after cut-off or on weekends will not start processing until the next business day. A Friday afternoon payroll submission, for example, won’t start processing until Monday, potentially delaying employee deposits until Tuesday or Wednesday.

ACH payments offer several key advantages for businesses, from dramatically lower costs to improved cash flow management, making them an essential tool for modern financial operations. These benefits explain why ACH volume continues to grow annually as more companies recognize the operational and financial advantages.

Low processing cost

ACH transfers cost a fraction of other payment methods, typically ranging from $0.26 to $0.50 per transaction according to the Association for Financial Professionals surveys. Compare this to the median cost of processing a paper check at $2 to $4 when factoring in materials, labor, and postage, or credit card processing fees that average 2.5 to 3.5 percent of the transaction value. For a business processing 1,000 monthly payments, switching from checks to ACH could save $3,000 or more each month in processing costs alone. These savings become even more significant for high-value B2B transactions where business credit card fees would be prohibitive.

Efficiency and automation

Electronic ACH payments eliminate manual processes associated with paper-based transactions. Businesses can schedule recurring payments for payroll, vendor invoices or customer collections without generating individual transactions each time. This automation reduces administrative burden and human error while freeing up staff to focus on higher-value tasks. Accounting software integrates directly with ACH processing, updating records and reconciling transactions automatically. A company with 500 employees paying weekly payroll saves dozens of hours a month by using automated ACH deposits instead of cutting and distributing paper checks.

Faster than paper

While ACH isn’t instant, it’s much faster than paper checks. Mailing a check can take three to five days for delivery, plus additional time for the recipient to deposit and clear the funds, creating a total cycle of seven to ten days or more. ACH payments typically take one to three business days, improving cash flow predictability for both senders and receivers. This speed advantage helps businesses manage working capital better and reduces the float period where funds are inaccessible.

Security advantages

ACH transactions move through secure bank networks with multiple layers of authentication and encryption, reducing risks associated with paper checks that can be lost, stolen or altered. Bank account information is transmitted electronically through protected channels instead of being printed on checks that pass through multiple hands. The digital nature of ACH creates audit trails, making it easier to track payments and investigate discrepancies. While ACH fraud exists, the controlled environment and authentication requirements provide more protection than physical payment methods.

Fewer payment failures

Unlike credit and debit cards that expire or reach limits, bank accounts remain stable payment sources. This is especially beneficial for businesses with recurring revenue models. A subscription service using ACH for monthly billing has fewer failed payments than a card-based system where 15% or more of transactions fail due to expiration, insufficient credit or fraud blocks. The lower failure rate means more predictable revenue and less time spent collecting updated payment information from customers.

Wire transfers and ACH payments both move money between bank accounts electronically, but they operate through fundamentally different systems with distinct advantages and limitations. Understanding these differences helps businesses choose the appropriate method for each transaction type.

Speed represents the most significant difference between these payment methods. Wire transfers process in real time, typically completing within hours or even minutes during banking hours. ACH transfers move through batch processing systems and generally take one to three business days. This speed differential makes wires essential for time-critical transactions like real estate closings or emergency vendor payments, while ACH suits routine payments where a short delay is acceptable.

The cost disparity between these methods is equally stark. Domestic wire transfers typically cost $20 to $30 per transaction, with some banks charging up to $35 for outgoing wires. International wires can cost $45 to $65 or more. ACH transfers, by contrast, cost pennies to a few dollars at most, often under $1 per transaction. For a business sending 100 monthly vendor payments, choosing ACH over wires could save $2,500 or more each month in fees alone.

Use cases naturally align with these characteristics. Wire transfers serve large, urgent, or one-time transactions where speed justifies the cost. Common wire scenarios include commercial real estate purchases, large equipment acquisitions, or international supplier payments. ACH works better for recurring domestic payments like payroll, regular vendor invoices, or customer collections where cost efficiency matters more than instant settlement.

Reversibility presents another key distinction. Wire transfers, once sent and received, are essentially irrevocable except in cases of proven fraud. This finality provides certainty for recipients but requires senders to be absolutely certain of payment details. ACH transactions can be reversed under specific circumstances, including unauthorized debits or processing errors, within established timeframes. This reversibility offers some protection but also means businesses must wait to ensure certain funds won't be recalled.

Access and automation capabilities further differentiate these methods. Most banks allow businesses to initiate ACH payments online and schedule recurring transfers easily. Wire transfers often require more manual intervention, sometimes necessitating phone calls or in-person bank visits, and cannot be automated in the same way. This accessibility difference reinforces ACH as the practical choice for regular business payments while reserving wires for exceptional circumstances.

Paper checks have served as a payment staple for decades, but ACH transfers offer compelling advantages that explain why businesses increasingly abandon checks for electronic payments. The comparison reveals clear benefits in nearly every dimension that matters to business operations.

Cost and efficiency

Processing paper checks costs businesses significantly more than ACH payments when accounting for all associated expenses. The median cost to issue a business check ranges from $2 to $4, including check stock, envelopes, postage, and staff time for printing, signing, and mailing. ACH payments cost only $0.26 to $0.50 per transaction with minimal labor involvement. A business issuing 500 monthly payments could save $1,500 or more by switching from checks to ACH, not including the additional savings from reduced staff time and eliminated supply costs.

The efficiency gap extends beyond direct costs. Check processing requires multiple manual steps from printing to reconciliation, while ACH payments flow automatically from accounting systems to bank networks. Staff members who previously spent hours weekly managing check runs can redirect efforts toward strategic financial activities rather than routine administrative tasks.

Speed

Paper checks move at the pace of physical mail and manual processing, creating delays at every step. Mailing a check takes three to five business days, the recipient must deposit it, and clearing adds another two to five days. The total cycle often extends to two weeks, particularly when crossing state lines or dealing with businesses that batch deposit checks weekly.

ACH payments eliminate postal delays entirely, moving funds electronically in one to three business days. This acceleration benefits both parties through improved cash flow visibility and faster access to funds. Vendors receive payments more quickly, potentially improving business relationships and qualifying buyers for early payment discounts.

Security and error reduction

Physical checks create multiple security vulnerabilities throughout their lifecycle. Checks can be lost in mail, stolen from mailboxes, or altered fraudulently. The account and routing numbers printed on every check provide potential fraudsters with sensitive information. Check fraud losses reached $15.8 billion in 2023 according to the Federal Reserve, highlighting the ongoing risks.

ACH transfers move through secure bank networks with encryption and authentication protocols. Without physical documents to intercept or alter, the opportunity for fraud diminishes substantially. Electronic transactions also reduce errors from illegible handwriting or incorrect manual entry, as payment information flows directly from validated banking records.

Convenience and record-keeping

Managing paper checks burdens both senders and receivers with physical document handling. Businesses must store blank check stock securely, file carbon copies, and maintain registers. Recipients make bank deposits and wait for funds to clear before accessing money.

ACH payments exist entirely in digital form, creating automatic electronic records for both parties. Payments integrate with accounting software, eliminating manual reconciliation. The convenience extends to payment scheduling, as businesses can automate recurring ACH payments while checks require individual preparation for each payment cycle. This digital approach aligns with modern business operations where paper-based processes increasingly seem anachronistic.

Credit cards and ACH transfers compete for business payment volume, each offering distinct advantages depending on transaction size, frequency, and business model. The choice between these methods significantly impacts a company's payment processing costs and operational efficiency.

Transaction fees

Credit card processing fees typically range from 2.5 to 3.5 percent of the transaction value plus a fixed per-transaction cost, creating substantial expenses for businesses. A $10,000 B2B invoice paid by credit card might generate $300 or more in processing fees. The same payment via ACH would cost less than $1 in most cases, representing a 99 percent reduction in transaction costs.

This fee structure makes ACH particularly attractive for large transactions or businesses with thin profit margins. A wholesaler processing $1 million monthly in payments could save $25,000 or more by encouraging ACH over cards. However, for small consumer transactions where convenience drives conversion, the higher card fees may be justified by increased sales.

Speed of funding

Both payment methods offer comparable settlement times for merchants, despite different authorization processes. Credit card transactions authorize instantly at the point of sale, but merchants typically receive funds in one to two business days. ACH payments take one to three days total, making the actual funding timeline similar for business cash flow purposes.

The key difference lies in payment certainty. Credit card authorizations provide immediate confirmation that funds are available, while ACH payments may fail days later due to insufficient funds. This timing difference influences how businesses manage inventory releases and service delivery.

Chargebacks and reversals

Business credit cards include robust consumer protection mechanisms through the chargeback process, allowing customers to dispute transactions for up to 120 days in many cases. Merchants bear the burden of proving transaction validity and may lose both the payment and merchandise if unsuccessful. Chargeback rates averaging 0.60 percent of transactions create significant costs through lost revenue and administrative overhead.

ACH payments operate under different reversal rules. Consumers can report unauthorized ACH debits within 60 days for reversal, but the dispute process differs from credit card chargebacks. Business-to-business ACH transactions have even more limited reversal options, typically only for technical errors or unauthorized transfers. This reduced reversal risk makes ACH attractive for B2B transactions where established relationships minimize payment disputes.

Customer convenience

Credit cards excel in convenience, particularly for one-time purchases or new customer relationships. Buyers need only provide card information without sharing sensitive bank account details. The ubiquity of card acceptance and integration with e-commerce platforms streamlines the purchase process.

ACH payments require customers to provide routing and account numbers, creating more friction in initial setup. However, once established, ACH enables seamless recurring payments without expiration dates or card limit concerns. Many businesses find customers willing to provide bank information for significant savings on large invoices or in exchange for discount terms.

When to use

ACH payments make sense for recurring billing relationships, B2B invoices over $500, and situations where both parties can absorb the setup requirements. Credit cards remain optimal for retail transactions, one-time purchases, and scenarios where immediate payment confirmation is essential. Many businesses offer both options, passing along cost differences through cash discounts or convenience fees to incentivize appropriate payment method selection.

Knowledge of ACH pricing structures helps businesses accurately project payment processing costs and compare providers effectively. While ACH remains one of the most economical payment methods available, fees vary based on transaction volume, provider type, and service level.

Typical fees

Most banks and payment processors charge between $0.20 and $1.50 per ACH transaction, with the median business cost hovering around $0.29 according to industry benchmarks. Some providers structure pricing as a percentage of transaction value, typically 0.5 to 1 percent, often capped at $5 per transaction. High-volume businesses may negotiate flat monthly fees covering unlimited transactions or receive volume discounts bringing per-transaction costs below $0.10.

Payment processors catering to small businesses often simplify pricing with flat fees. Stripe charges $0.80 per ACH transaction with no percentage component, while other providers offer similar straightforward structures. Traditional banks may bundle ACH services with business account packages, including a set number of free monthly transactions before per-item charges apply.

Receiving vs. sending

Financial institutions typically charge for both originating and receiving ACH payments, though consumer accounts often receive deposits free while businesses pay for both directions. A company collecting payments from customers (ACH debits) and paying vendors (ACH credits) should budget for fees on both transaction types. Some banks charge slightly different rates for debits versus credits, with credits sometimes costing marginally more due to different risk profiles.

Penalty and exception fees

Failed ACH transactions trigger additional charges beyond standard processing fees. Returned payments due to insufficient funds or incorrect account information typically incur fees of $25 to $35, similar to NSF check charges. These return fees apply even when the original transaction fee was minimal, making account verification important for cost control.

Other potential charges include fees for same-day ACH processing (typically $1 to $5 extra per transaction), batch processing fees ($5 to $15 per file regardless of transaction count), and fees for detailed reporting or addenda records. Businesses requiring specialized services like ACH-positive pay or sophisticated fraud filters may pay monthly service charges ranging from $25 to $100.

Comparison to other methods

The fee advantage of ACH becomes clear when compared to alternatives. Paper checks cost $2 to $4 each when factoring in materials, postage, and labor. Wire transfers run $20 to $35 for domestic transfers. Credit card processing takes 2.5 to 3.5 percent of transaction value, meaning a $1,000 payment costs $25 to $35 versus under $1 for ACH.

For concrete comparison, consider a business processing 500 monthly payments averaging $1,000 each. Credit card fees would total approximately $15,000 monthly at 3 percent. The same payments via ACH would cost roughly $150 in transaction fees, providing $14,850 in monthly savings. Even accounting for returned items and other occasional fees, the cost advantage remains overwhelming for suitable transaction types.

Setting up ACH payment capabilities requires methodical preparation but proves straightforward with proper guidance. Most businesses can begin processing ACH transactions within a week of initiating the setup process.

1. Work with a bank or payment processor

Businesses cannot directly access the ACH network and must partner with a financial institution or payment processor serving as an Originating Depository Financial Institution (ODFI). Evaluate potential providers based on transaction fees, processing times, integration capabilities with existing accounting software, and customer support quality. Traditional banks often bundle ACH services with business accounts, while fintech providers may offer more flexible APIs and modern interfaces.

Consider whether you need both ACH debit (collecting payments) and credit (sending payments) capabilities. Some providers specialize in one direction, particularly third-party processors focused on accounts receivable. Request detailed fee schedules including per-transaction costs, monthly minimums, and any setup or special service charges.

2. Set up the account/service

The application process requires business documentation including EIN, formation documents and possibly financial statements. Providers will do due diligence to assess transaction volume, business model and fraud risk. This underwriting process usually takes 3-5 business days, but established banking relationships may expedite the process.

Once approved, you’ll receive an Originator ID and access to the provider’s ACH submission platform. Many providers offer test environments to test integration before processing live transactions. Take time to understand submission deadlines, file format requirements and available reporting tools.

3. Obtain customer authorization

Before initiating any ACH debit transaction, get proper authorization from the account holder. Written authorization is the gold standard, clearly stating the payment amount, frequency and your company name as it will appear on the bank statement. For recurring payments, the authorization should specify start dates and any conditions for amount changes.

Electronic authorization works well for online transactions when implemented properly. Include clear consent language, capture IP addresses and timestamps and send confirmation emails to create an audit trail. Phone authorization requires recordings and careful documentation. Store all authorizations securely for at least 2 years after the final transaction.

4. Gather necessary information

Collecting accurate bank information prevents costly returns and customer frustration. Required fields are the bank routing number (9 digits), account number, account type (checking or savings) and account holder name. Many businesses use verification services to confirm account validity before processing payments.

Implement secure collection methods for sensitive banking data. Online forms should use SSL encryption, while paper forms require physical security measures. Train staff to handle this information properly, never asking for it via unencrypted email or storing it in an accessible location.

5. Initiate ACH transactions

Modern ACH processing is done through online portals or API integrations not manual file creation. For individual transactions, enter payment details including amount, effective date and recipient information. Recurring payments allow one-time setup with automatic processing on specified schedules.

Batch processing handles multiple transactions. Accounting software often exports ACH files in NACHA format which you upload to your processor. Schedule submissions before cut-off times as ACH only processes on banking days.

6. Manage and reconcile

Have procedures to monitor ACH activity daily. Review processing confirmations, identify any returns or notices of change and investigate exceptions promptly. Returns typically show up 2-4 business days after origination so respond quickly to minimize impact.

Integrate ACH reports with accounting software for easy reconciliation. Many providers offer automated reconciliation tools that match payments to invoices or bills. Keep organized records for each transaction especially for recurring payments where the initial authorization may be months or years old.

7. Inform customers

Clear communication helps customer acceptance of ACH payment options. Add bank transfer instructions to invoices, highlight the cost savings vs credit cards. For B2B relationships, personally discussing ACH benefits often increases adoption especially for high value recurring transactions.

Create simple instruction sheets on how to find routing and account numbers on checks. Address security concerns by describing your data protection measures. Offer incentives like small discounts for ACH payment, reflecting your cost savings while encouraging adoption.

8. Consider ACH timing

Build ACH processing into your cash flow planning and customer communications. Initiate payroll deposits 2 days before payday so funds are available. For collections factor in the 3-4 day clearing period before considering funds fully collected.

Communicate timing clearly to avoid confusion. If invoices are due on the 15th, customers paying ACH on the due date won’t settle until the 17th or 18th. Some businesses adjust terms for ACH payments and request initiation several days before traditional due dates while still offering favorable payment terms recognizing the cost savings.

ACH payments have grown from a simple way to replace paper checks into the main system that American businesses use to move money. Today, this network handles more than 31 billion transactions every year while keeping costs much lower than other payment options. After looking at all the ways businesses use ACH transfers, it's clear they offer real benefits through their mix of cheap fees, smooth operations, and acceptance by almost every type of business in the country.

The facts show that businesses using ACH payments get ahead of their competition in important ways. While ACH transactions usually cost less than 50 cents each, paper checks cost $2 to $4 and credit cards take about 3 percent of every payment. This means companies can save thousands of dollars every month on payment fees alone. At the same time, they can set up automatic payments, know exactly when money will arrive, and keep their transactions secure. Understanding these benefits and how easy it is to start using ACH helps any business immediately save money and run more smoothly.

Modern financial platforms like Brex integrate ACH capabilities seamlessly with complete startup banking services, eliminating the complexity of managing multiple vendors. Brex's automated bill pay leverages ACH infrastructure to schedule and process vendor payments automatically, while their spend management software provides real-time visibility into cash flow across all payment methods. The platform's ability to unify ACH payments, corporate cards, and expense management creates the kind of financial control and efficiency that traditional banking relationships struggle to match.

Brex also offers businesses a complete financial operating platform where corporate cards earn rewards while integrating with the same dashboard handling your ACH vendor payments and payroll. Their approach eliminates the reconciliation headaches that plague businesses using disconnected tools, while providing the modern APIs and automation features that growing companies need.

Sign up for Brex business banking today to transform how your company manages payments and unlock the full potential of integrated financial operations.