ACH payment: How does it work?

ACH payment stands for automated clearing house payment is a secure online money-transfer system where money is sent from one bank account to another and can be either a credit or a debit in batches. It can be recurring and one-time payments and also used for government, consumer and business-to-business transactions and international payments which facilitates in the U.S. It is run by NACHA i.e. National Automated Clearing House Association.

Why should one choose it?

  • It improves the security of your bank information and prevents money loss.
  • It is a paperless online payment or automated money transfer system between banks and financial institutions.
  • A company can easily make the payment for electronic bills, rent and other expenses.
  • An individual can use this to pay through the Direct Payment system as an ACH credit or ACH debit.
  • It makes online transactions fast, easy and often free
  • Money can be sent globally in multiple currencies like AUD, EUR, GBP, INR, and USD

Types of ACH transfers

There are two types of ACH transfers-

  1. Direct Deposit - Money can be deposited directly into your account online. This deposit is made from a business or government entity to a consumer.

For example,

  • Paychecks
  • Tax Refunds
  • Employer-Reimbursed Expenses
  • Bonuses and commissions
  • Dividends and Interest Payments
  • Government Benefits
  • Annuity Payments
  1. Direct Payments - Money is deducted from your account. This payment is made by individuals, businesses, and other organizations to send money.

For example,

  • With the help of your bank account, you can pay your bill online.
  • Paying for subscription and membership
  • Charitable donations
  • Insurance & tax payment
  • Investment accounts funding
  • Loan payments

How does it work?

The ACH network uses a batch processing system to process payments. A financial institution collects a large number of payments at a specific time of day and processes them all at once.

To enforce the ACH payment, you must do the following:

  • Register your account with your online bill payment service or authorise it on the billing company's website.
  • Schedule a payment date for the one-time payment or mandate.
  • If the payment date changes, the company will send you a written notification at least one week before the next payment date.

ACH Fees

  • ACH charges no fee for using Direct Payment or Direct Deposit.
  • Most banks and credit unions provide free online bill payment services.
  • Some government agencies, electronic tax filing services, and other service providers may charge a convenience fee.

How to set up an ACH Direct Deposit and Direct Payment?

Set up an ACH Direct Deposit:

  • Get the authorization form from your bank.
  • Fill up the personal and bank account details.
  • Start receiving your payment directly in your bank account.

Set up An ACH Direct Payment:

  • Sign up with the companies that send you bills or pay using your bank account.
  • You can take the help of the company or go to their website to learn how to enrol in Direct Payment with your bank account.
  • Schedule and make the payment from your bank account using their online banking website.

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