A Comprehensive Guide to ACH Payments: Definition, Cost, and Benefits

Electronic fund transfers have become a key part of today’s fast-moving digital world. Among the options available for transferring money digitally, Automatic Clearing House (ACH) payments stand out as a reliable and cost-effective solution.

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This article explores the ins and outs of ACH payments, including ACH payment types, the benefits of using ACH payments, and how to set them up.

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What Are ACH Payments?

ACH payments are electronic fund transfers that move capital from one bank account to another. They pass funds seamlessly between bank accounts, making them ideal for recurring transactions such as payroll, vendor payments, bill settlements, and more.

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ACH payments run on the Automatic Clearing House (ACH) network, which facilitates the secure and efficient transfer of funds. Governed by the National Automated Clearing House Association (NACHA), the ACH network ensures that all transactions adhere to rules that maintain the system’s integrity, safety, and reliability. ACH payments can take many forms, including direct deposits, direct payments, and electronic checks.

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What Are ACH Payment Types? ACH Credit vs. ACH Debit

ACH credits and ACH debits represent two distinct directions that funds can move within the ACH network:

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ACH Credit. ACH credits are initiated by the sender of the payment. They involve transferring funds from the payer's account to the payee's account, effectively depositing money into the recipient's bank account. This payment method is commonly used for direct deposits, payroll, vendor payments, and other scenarios where funds need to be transferred reliably and securely.

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ACH Debit. ACH debits work in reverse. In this case, the recipient or the payee initiates the transaction, allowing them to effectively pull funds from the payer's account to settle a payment. ACH debits are often utilized for recurring bill payments, subscription fees, and other situations where regular payments need to be collected automatically from customers' accounts. By using ACH debits, businesses can streamline accounts payable processes. This can help with cash flow management and minimize manual work with payments.

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While ACH credit and debit transactions are fundamentally different, they do share key benefits over traditional payment methods. Both ACH payment types can lower processing costs and reduce risks associated with paper-based checks.

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How Much Do ACH Payments Cost?

The 2022 AFP Payments Cost Benchmarking Survey found that the median cost of initiating and receiving an ACH payment cost businesses between 25 and 50 cents, on average. The median for businesses with at least $5 billion in annual revenue falls to 11-25 cents.

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That said, ACH payment fees vary depending on the service provider, transaction volume, and level of service. Generally, banks and financial institutions charge a nominal fee for each ACH transaction or offer flat-rate pricing for businesses with a higher volume of transactions.

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Businesses stand to save on transaction costs by adopting ACH payments. This is especially true if they are choosing ACH payments instead of paper checks or wire transfers, which often can incur larger processing fees. The cost-effectiveness of ACH payments makes them an attractive choice for organizations seeking to improve their finances.

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How Long Do ACH Payments Take?

Traditionally, ACH payments have operated on a batch processing schedule. This meant transactions were grouped and processed at intervals throughout the day. As a result, it could take one to three business days to complete a payment.

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However, the introduction of same-day ACH has improved the speed of ACH transactions. With same-day ACH, the ACH network can process and settle certain ACH transactions within a single business day. This provides a faster option for time-sensitive payments.

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While the average time for an ACH payment is 1-3 business days, the exact processing time for ACH payments depends on various factors including the time of the request, whether it is a debit or credit payment, financial institutions involved, and specific ACH rules governing the transaction.

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The Benefits of ACH Payments

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Better tracking and visibility. Compared to traditional payment methods like checks, ACH payments offer superior visibility into payment transactions. This digital payment method enables businesses to track payments and cash flow in real-time, which leads to more accurate financial reporting.

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Easier to organize. Replacing paper checks with ACH payments eliminates the need for manual check handling and storage. This facilitates a more organized accounts payable and receivable process, reducing the risk of errors and check fraud.

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Faster payments. ACH payments expedite fund transfers when compared to the time-consuming process of issuing, mailing, and processing paper checks. Faster payment processing can improve cash flow management and business relationships.

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More safety precautions. ACH payments are safer than paper checks, as they are less susceptible to physical tampering, loss, or theft during transit. Furthermore, the electronic nature of ACH payments ensures secure data transmission and authentication, reducing the risk of fraud.

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Streamlined reconciliation. ACH payments offer detailed electronic records, simplifying the process of reconciling accounts and reducing errors in financial reporting.

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Cheaper payment method. ACH payments often provide cost savings for teams, particularly those handling a high volume of transactions. The lower processing fees of ACH payments make them an appealing option for companies seeking to reduce payment-related expenses.

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How to Set Up ACH Payments

ACH payments require careful planning and execution. Here's a step-by-step guide to setting up ACH payments for your business:

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Choose an ACH Provider. First decide whether your business will use ACH services through your bank or opt for a third-party provider. Assess the options available, considering factors such as fees, security, and compatibility with your existing systems.

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Enrollment/Onboarding: After selecting a provider, it’s time to train your team on how to use the new ACH payment system. This training should cover how to set up and send payments, create recurring debit transactions, and input vendor payment details. Now is also the time to upload any relevant information to your system, including your account numbers, routing numbers, bank names, and account types.

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Onboard Suppliers: Lastly, collaborate with your vendors to finish setting up your ACH payments. Gather their necessary banking information and enter it into the new system. This must either be done by your team, or some ACH platforms offer self-service options for vendors to streamline the onboarding process and reduce administrative burdens.

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Cash Management Solutions and ACH Payments

Cash management solutions empower businesses to gain better control over their payments and financial operations. With AP and AR automation, finance teams can significantly cut back their manual workload and make impressive efficiency gains. Teams can further maximize these benefits by moving more of their payment mix over to ACH payments, which offer much faster and safer payment options than traditional paper checks.

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Are ACH Payments Right for Your Business?

ACH payments have emerged as a cornerstone of the modern business world. They provide a secure, cost-effective, and efficient method for moving funds. With benefits ranging from better tracking and visibility to stronger payment security, ACH transfers are a top choice for businesses.

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If you’re wondering if ACH payments are right for your business, it’s good to consider the different types of ACH payments, along with their costs, benefits, and processing times.

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Embracing ACH Payments with Centime

ACH payments represent a forward-looking solution that can help businesses make faster and more secure payments. ACH payments not only streamline financial processes but set the stage for sustainable growth and success in today's competitive business world.

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If you’re looking to learn more about how adding ACH payments can improve your cash management strategy, click the banner below to explore Centime for free.

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**Deposit placement through ICS is subject to the terms, conditions, and disclosures in the applicable agreements. Although deposits are placed in increments that do not exceed the FDIC standard maximum deposit insurance amount (“SMDIA”) at any one destination bank, a depositor’s balances at the institution that places deposits may exceed the SMDIA (e.g., before settlement for deposits or after settlement for withdrawals) or be uninsured (if the placing institution is not an insured bank). The depositor must make any necessary arrangements to protect such balances consistent with applicable law and must determine whether placement through ICS satisfies any restrictions on its deposits. A list identifying IntraFi network banks appears at https://www.intrafi.com/network-banks. The depositor may exclude banks from eligibility to receive its funds. IntraFi and ICS are registered service marks, and IntraFi Cash Service is a service mark, of IntraFi Network LLC.

^††3.5% Annual Percentage Yield (APY) as of 11/19/24. Deposit rate may adjust to current market rate and may change daily. Fees may reduce earnings.

*Centime is not a bank and is not authorized by any federal or state agency to engage directly in core banking activities.
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*All banking products and services available through Centime are provided by FNBO and are governed by the applicable agreements and related disclosures provided to you by FNBO. Member FDIC.
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‍*While Centime facilitates traditional banking activities (such as the acceptance of deposits or extensions of credit), these services are actually provided by our banking partner, FNBO.
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*Centime may provide support services to FNBO, as permitted by applicable law, to facilitate the delivery of its bank products and services.

**Deposit placement through ICS is subject to the terms, conditions, and disclosures in the applicable agreements. Although deposits are placed in increments that do not exceed the FDIC standard maximum deposit insurance amount (“SMDIA”) at any one destination bank, a depositor’s balances at the institution that places deposits may exceed the SMDIA (e.g., before settlement for deposits or after settlement for withdrawals) or be uninsured (if the placing institution is not an insured bank). The depositor must make any necessary arrangements to protect such balances consistent with applicable law and must determine whether placement through ICS satisfies any restrictions on its deposits. A list identifying IntraFi network bank

A Comprehensive Guide to ACH Payments

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