What Are ACH Payments?

Posted by Checkbook on Sep 17, 2020

Trying to make or receive direct payments without the additional fees and obstacles of credit cards or paper checks? ACH payments may be the answer. Automated Clearing House (ACH) payments are electronic payments that pull directly from a checking account.

To make an ACH transaction, the customer must authorize a biller, corporation, or any receiver, to debit directly from the customer’s checking or savings account. This process typically involves the customer providing their bank account and routing number. The biller prepares the ACH transaction for electronic submission from the originating depository financial institution (ODFI) with the account and payment information. The customer-specified payment date is sent along with the submission. The information is sent through the ACH network, which then credits the ODFI and and debits the customer’s bank account (RDFI). The biller and customer should be notified of ACH payments.

In contrast to credit card payments, ACH payments are only conducted on banking days and settled at a specified time each day.

Pitfalls of ACH Payments

Despite the benefits of ACH payments – including reduced costs, increased efficiency, trackability, etc. – customers must give up certain levels of control over their payments. First, ACH payments require customers to provide sensitive bank information. In some cases, customers may be exposed to chances of erroneous draws or overdrafts caused by the biller. In addition to the fact that ACH payments cannot be conducted in real-time, these transactions are also irrevocable and irreversible after settlement. However, you are also protected against ACH errors or fraud with timely reporting.