Automated Clearing House (ACH) Credit | B2B Finance Glossary
What Is An Automated Clearing House (ACH) Credit?
An Automated Clearing House (ACH) credit is a type of ACH transfer where funds are pushed into a bank account: this means that the sender of the payment triggers the funds to be sent to the receiver of the payment.
ACH stands for Automated Clearing House: the official electronic network that initiates payments from one bank account to another. It connects over 10,000 banks and financial institutions in the US. ACH payments are run by the National Automated Clearing House Association (NACHA) and include different payment categories such as direct deposits, peer-to-peer payments, bill payments initiated by e-commerce platforms, and ACH payments initiated by paper checks.
What Is The Difference Between A Direct Payment And An ACH Credit?
ACH payments can be split up into two categories: direct deposits and direct payments. Direct deposits are another name for ACH credits. A direct deposit is when funds are sent from one bank account to another, while a direct payment involves one account directly extracting funds from another account. Therefore, since an ACH credit is the same thing as a direct deposit, an ACH credit involves one account sending funds to another account.
When Are ACH Credits Used?
ACH credits, or direct deposits, typically include direct payments from a business or government entity to a consumer. Here are a few examples of when ACH credits are normally used:
- Employee expense reimbursement
- Government benefits
- Tax refunds and other refunds
- Interest payments
- Annuity payments
What Are The Benefits Of ACH Credits?
An ACH credit is a payment option where funds are electronically transferred from the payer’s account to the payee’s account. This process helps payees receive funds much more quickly than if they were being paid with a paper check since checks are subject to mail float: the time it takes for a check to travel through the postal system from payer to payee.
The American Payroll Association (APA) conducted a survey in 2022 and revealed that over 93% of survey participants used ACH credits as their chosen payment method. This reveals how popular ACH credits are – a result of allowing payees to control their finances more by accessing funds quickly with no added fees.
Additionally, the aCH system not only makes payments faster but also makes them more secure. They make more transactions possible in less time and propel businesses forward across every industry.
What Information Is Required To Initiate An ACH Credit?
To make it possible to receive funds via ACH, you’ll need your savings or checking account, your routing number, and your bank account number. It’s not possible for an ACH credit to go through until this data is shared with the payer.
What Are The Differences Between ACH Credits And ACH Debits?
ACH debits (also known as direct payments) differ from ACH credits in one very specific respect: while ACH credits allow funds to be directly deposited from the payer’s account into the payee’s account, ACH debits pull funds from the payer’s account directly and transfer them into the payee’s account.
What Are The Differences Between ACD Credits And Wire Transfers?
Wire transfers and ACH credits are different ways of facilitating the movement of funds from the payer to the payee. However, there are a few key differences. Firstly, wire transfers tend to be much more expensive than ACH payments. Typically, ACH payments cost less than a dollar. In contrast, wire transfers can cost anywhere between twenty-five dollars and fifty dollars, depending on whether or not they are domestic or international wire transfers.
However, most ACH payments take longer to process than wire transfers do: ACH payments can take anywhere from 24 hours to 5 days to process, while wire transfers are usually same-day services when sent on days that banks are open.
Finally, while ACH payments have a partner network called Global ACH which offers international bank-to-bank payments, they are typically used for domestic payments. On the other hand, wire transfers are much more popular for making international transactions.
How Secure Are ACH Payments?
ACH payments are one of the most secure payment methods available, particularly because they can be reversed if that’s what is desired. Wire transfers, on the other hand, are impossible to reverse.
Additionally, ACH payments go through a clearing house – the Automated Clearing House – that enforces rules and regulations while keeping individual and business account numbers confidential. As a result, ACH payments are more secure than other forms of payment. For example, on average, eight people will handle a check before it goes through the full payment cycle, which makes paper checks highly susceptible to fraud.
Finally, the Electronic Funds Transfer Act gives 60 days for victims to recover funds that have been lost to ACH fraud or error, so if there is an issue with an ACH transfer, there is an opportunity for it to be resolved.