This blog post about ACH Payment definition, what is ACH Payment, and ACH payment process.
What is ACH Payment
ACH Payment is an electronic payments made through the Automated Clearing House network, a secure system for clearing electronic payments between banks. Managed by NACHA (formerly the National Automated Clearing House Association), the network is much quicker than paper checks, which can never travel faster than the speed of mail. helps reduce errors, saves valuable resources, and provides much greater security than with paper checks, which helps explain why ACH payment volume grew to over 20.2 billion transactions in 2011.
ACH also refers to the Automated Clearing House, an electronic network that allows banks and their customers to send funds between one another in the United States. Basically, when you pay a bill online and opt to use a ‘bank account’ rather than a credit card, your payment is being processed through the ACH network. By entering your account and routing number instead of your credit card number, you’re initiating an ACH transaction. Automated Clearing House (ACH) is a payment network that facilitates financial transactions between banks.
The ACH processed more than 24 billion payments in 2015, among them over 11 billion debit transactions and 8 billion credit transactions. The return rate on unauthorized debit transactions in 2015 was only .03 percent, and businesses continue to embrace the network as a reliable and consistent way to send information and payments.
What is unique about the ACH payment system is that originators can request direct payments in batches. An operator of the ACH, which can be a representative from the Federal Reserve or a clearinghouse, then sorts the payment batches and sends them to the financial institutions of the intended beneficiaries. There are more than 10,000 banks and financial institutions managed by the NACHA.
ACH Payment Charges
ACH payment charges vary among banks and financial institutions. For example, the Chase ACH payment service charges merchants $25 per month for 25 transactions, and each additional transaction is 15 cents.
The cost of ACH payments to consumers depends on the type of transaction. When people receive their payroll checks and government benefits via direct deposit, the actual transaction is normally free. Consumers who pay their bills online usually don’t incur any fees for the transaction itself, but companies do add fees that are separate from the ACH payment.
ACH Payment Processing and hoe it work
You might be asking how does ach payment processing work, below is how how ACH payment processing work.
The ACH payment processing allows your company to obtain funds more quickly than it would from paper checks.
Collecting Bank Information
When a customer makes an ACH payment to a company online or by telephone, he gives you his bank’s routing number, which is a nine digit number that identifies the bank. He also provides his bank account number, which can range from three to 25 digits. He then provides the amount he wants to pay you and gives authorization, either verbally or by clicking an authorization button in the online form, to acknowledge that he permits your company to withdraw the designated amount from his bank account.
Transmission to Automated Clearing House
At the end of each business day, your company gathers all of the payments that have been made throughout the day. You then submit all of the payments electronically to the ACH system through an interface such as FedLine, or through a third-party processing service. Your company then credits the payors’ accounts for the payments.
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Transmission to Banks
The day after your company submits a payment to the ACH, the clearinghouse electronically transmits the payment request to the bank. After receiving the electronic request, the bank checks the customer’s account to make sure that the funds are available to cover the payment request. It then places a hold on the account for the amount of the ACH payment. It typically transmits the funds electronically to the Automated Clearing House within one to two days after receiving the request, and the clearinghouse forwards the funds to your business account.
If there is not enough money in the customer’s account to cover the payment, the bank can either pay the amount and overdraft the customer’s account or reject the payment request electronically. When this happens, you will receive notification of the failed payment from the Automated Clearing House, prompting you to reverse the credit on the customer’s account. You may forward the customer’s bank information to a third-party check-recovery service, which makes two additional submissions to the clearinghouse to attempt to withdraw the funds from the customer’s bank account.