If you’re a businessman or a bank clerk, and your standard day involves a lot of transactions, you might be familiar with the ACH payment system. However, not everyone knows what it is or how it works. The majority of people have never even heard about it.
The fact is that it’s essential for every modern-day transaction used by both consumers and companies. To fully understand the topic of ACH payment, let’s review what it is, how it works, and when do we use it.
What Is ACH?
Let’s start from the basics as you’re probably wondering what is ACH payment, right? ACH is an electronic network designed for processing and clearing transactions. A computer-based settlement facility that performs automated transactions between financial institutions within the United States.
If you’re unaware of technical terms and abbreviations in this field, you might be a bit confused. So what does ACH stand for? ACH stands for the Automated Clearing House. ACH processes both credit and direct transfers. Of course, in case of direct debits, the payee must inform the bank that they will draw the funds from the payer’s account.
They must also have the authorization from the payer that they can access their account through a bank and draw a specific amount. This is also known as pre-authorized-payment or PAP. Because an agreement has been made between two parties (the payee and the payer), the bank simply processes the transaction using ACH. They don’t need any further approval except the payer’s authorization to perform the process.
What Is the AHC Number and Where to Find It?
The AHC routing number can be easily located on a check. It represents a bank in which you opened an account. It usually consists of nine digits and can be located on the bottom left corner of your check. The receiving bank will ask for it as it is required for bank-to-bank transfers.
When Do We Use ACH Transfers?
Now that we know what ACH transfers are, let’s find out when to use them. As stated above, these automated transfers are conducted every time you try to send money from the account in one bank to another. But this isn’t the only case where AHC transfers are being used. Whenever you go to pay your bills in a post office, the AHC transfer will allow that transaction. The same rule applies when paying taxes, mortgage, or any monthly-based utility bills. Because it’s an automated clearing house, the post office will use AHC to send money from their account to wherever the payee is.
Another scenario in which AHC transfers are being used is when you receive benefits from social security or get a payment from your employer. There are also annuity benefits, interest payments (for credit or similar agreements between a client and a bank), government benefits, etc.
If you didn’t know how to send an ACH payment before, now’s the time to learn. Here are the steps:
- Choose your financial institution. Whether it’s through a website, app, or bank itself, the process should be user-friendly and fast.
- You’ll need to enter your account number and routing number. If you go to a bank, there’s no need for your bank account as they already have access to it.
- Once you approve it, the transaction can move to ACH through your bank, RDFI, and finally, get to the payee.
As you can notice, the process is fairly easy and effortless. The money route will always be bank, ACH, RDFI, and payee’s account.
Benefits of ACH Transfers
Businesses prefer ACH transfers more than any other type, and you should too. Why? Because it’s not time-consuming as writing a check, it’s fast and safe.
- The first and most obvious benefit is that there are no fees.
That’s exactly why the majority of business owners prefer AHC transfer – they make the payment to a number of individuals without paying a dime on transfer fees.
- It’s fast, and the transfer is usually complete the next day.
Because banks don’t have to approve each transaction individually, but instead approve a group of payments, the clearing is done faster. Usually, the payee will get the money by the next business day. So if the transfer is activated on Friday, the payee gets the money on their account on Monday, first thing in the morning.
- It’s safer than conventional money transfer procedures.
Because ACH transfers are being managed by NACHA (National Automated Clearing House Association), there is little room for error. The NACHA was established in 1974 in the US. Several clearing houses were involved in setting the rules and managing transfers from one financial institution to another. Every transaction that goes through a bank in the US is being regulated by the NACHA policy.
Are There Any Downsides to ACH Transfers?
Just like any transaction, ACH transfers include some drawbacks to it. Depending on what you plan to use ACH transfers for, you might find these cons irrelevant or game-changing.
The first one is that some banks will put a limit on the amount you can send. Some banks have daily, monthly, or other restrictions for the amount sent per transaction. It’s best to check with the bank before you try to send a large sum of money online. So if you’re using an app from your bank, inquire about the limits per transfer.
They Don’t Include International Transfers
Another downside to ACH transfers is that you can’t send money internationally. There isn’t a global ACH. For example, the equivalent of ACH in Europe is the Single Euro Payments Area, or in short SEPA. It regulates transactions in 35 countries, with the exception of some territories.
You’ll Need to Time Your ACH Transfers
They are fast and reliable, but only if you time them right. For example, the clearing time in one bank isn’t always the same as in the next bank. To ensure that the payment lands on the payee’s account on the next business day, be sure to check with both banks regarding cleaning time.
Alternatives To ACH Transfers
There are a couple of alternatives to ACH transfers that you might find more or less appealing, depending on your personal preference. Of course, the nature of your transfer can also affect your preference for alternatives to ACH.
You can use paper checks as they are the most convenient method to wire money. Other alternatives may include credit cards (be sure to check which are accepted by the app), or online services like Paypal, or other.
If you need more information about writing online checks, alternative methods for transferring money online, or other online services, be sure to visit our website.