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ACH stands for Automated Clearing House, a network of banks that are sending funds between them to pay for services or products. It is casually known as “direct deposit.” Automatic bill-pay often uses ACH. ACH money transfers are generally done in groups (batches) and can take anywhere from a few hours to several days to be completed. Originally started as a system to replace paper checks, ACH allows businesses to receive an electronic payment directly from a buyer’s verified checking account. The person receiving funds needs the bank account number and routing number (ABA RTN) of the payee. These are found at the bottom of traditional checks or assigned to their banking institution. ACH bypasses the credit card networks, and therefore bypasses the credit card interchange and assessment fees. This is part of why fees on ACH are far less expensive than credit card transactions.
ACH transfers are also much lower in fees than Peer-to-Peer payments such as Venmo or PayPal. ACH is also a US only network, thus not available to payees outside the United States. However, ACH technology and certain networks are global and ACH has been used in other regions of the world for several decades. An ACH transfer is referred to as an EFT or electronic funds transfer.
Interestingly, an ACH is an EFT but EFT’s are not always an ACH transfer. An EFT is an electronic transfer of funds between accounts. EFT transactions can be between different accounts within the same bank or financial institution or span across multiple banks. EFT payment is also applicable to eChecks, ATM and Point of Sale transactions. Debit transactions are processed through the credit card networks and therefore subject to the same fees as credit cards.
ACH transfers are becoming increasingly common as they replace checks for a variety of applications including payroll (direct deposit) and bill pay. As businesses and accounting organizations digitize and use ACH for their accounts payable processing, ACH has definitely become the payment method of choice for vendor payments. Digital economy businesses like Uber and AirBNB rely on ACH transfers for their partner payouts.
ACH is a payment method of choice among public and private entities alike. Both small businesses, as well as enterprise corporations, now use ACH as a payment method. With the exception of cash, ACH transactions have some of the lowest transaction fees. The savings from accepting ACH payments accumulates quickly when there are many payments per day. For example, these are the approximate fees involved with a $500 transaction:
ACH Cost: $0.55
Paper Check Cost: $1.22
Credit Card: $9.60 (1.9 percent fee x $500 transaction + $0.10 transaction fee)
Now you can automate the process of receiving payment via ACH. EBiz Charge, by Century Business Solutions, provides you with the ability to receive ACH payments within your accounting/ERP system in the same way you would process a credit card receipt using EBiz. Fully integrated with Macola, Sage, QuickBooks, Accumatica and many more systems, there’s no charge to sign up and there’s no contract.