As a small business owner, you know there is nothing quite like the feeling of a successful sale. Thoughts quickly go through your mind of how you will apply the funds. Perhaps they will go to your overhead, to your business growth, or your own pocket – or perhaps all three.  

If payment is secured using ACH, it’s good to know some details about timing before distributing any funds. In this article, we cover the average processing times for ACH transactions to keep you organized and in the black.

First, Here’s How an ACH Transfer / Direct Deposit Works

Automated Clearing House (ACH) is a network of participating banks that fulfill bank-to-bank electronic transfers. Similar to a bank wire transfer or a paper check, this type of electronic transfer moves money directly from your customer’s bank account to your business bank account. You can also move funds from your business to your vendors or employees. 

Both business and consumer ACH transfers are often given another name, direct deposit. The transfers can be done between businesses or individuals, either as one-time payments or as recurring payments at a schedule you specify, such as monthly. Since the transfers are pre-authorized between you and your customer, ACH is the best way to receive ongoing purchasing of your goods or services. Its ease of use makes it a great alternative to paper checks while being significantly cheaper to deposit than paper. They also are less expensive than most types of payment. And since they are essentially online transactions, you or your customer can conduct an ACH transfer from anywhere via mobile deposit.

Do ACH Transfers Post Immediately?

ACH payments aren’t typically available immediately, but same-day processing is available if your customer requests it from their bank. This option is called Same Day ACH. If it is sent as a standard ACH payment, the transaction clears after 2-to-5 days, similar to a credit card or a paper check deposit.

There are some factors to know regarding Same Day ACH:

  • Funds may not arrive on the same day. It depends on the timing of the order request and the hours of the sending and receiving banks.
  • Not all banks within the United States allow for Same Day ACH.
  • You cannot exceed $25,000 per transaction.
  • There are additional fees determined by each bank.
  • You cannot send international transactions.

Reasons an ACH Transaction is Not an Instant Transfer of Funds

The reason ACH timing is not immediate like a wire transfer is payment requests are not in real-time. The customer’s bank will group transactions at a certain point during a workday. A group of electronic orders is called a batch. Typically, banks send three batches a day. Depending on the time of the batch and the working hours of each bank, the arrival time for the funds can vary – even for Same-Day ACH.

Let’s say your customer requests a Same-Day ACH payment on a Friday night after the afternoon submission deadline, and the bank is closed on weekends. This means the request isn’t received and processed until the subsequent deadline, which in this case would be the Monday morning submission deadline.   

For standard ACH payments, processing times can be longer because of the timing allowances for banks fulfilling standard requests. If it is an ACH credit (the payment to your business from the customer), the processing time can take 1 to 2 days to arrive in your account. An ACH debit (your payment to a vendor) must be done by the next business day. In both cases, there are bank hours to contend with in addition to possible delays in fulfillment in order to verify the funds, even after they are shown as “cleared.” These times are called settlement times.

If for any reason the settlement time isn’t completed, and the transaction isn’t fully verified, the previously “cleared” funds can be reversed, which can create a bit of a headache if you start distributing funds early. It is often best to wait for the settlement days to pass before making any related payouts or financial investments. 

Does ACH Work During Banking Holidays

Since ACH transfers are tied to banking hours, the funds won’t clear on banking holidays. It works just like weekends. If your customer initiates payment on a holiday, the request won’t be processed until the next banking day. This is true even though the transaction is done through an online banking portal.

H2: Is ACH Billing Different from a Debit Card Transaction?

Both are linked directly to the customer’s bank account, but there are some differences:

  • Debit cards have lower payment limits than ACH transactions. In a 24-hour period, a debit card limit ranges from $1,000 to $5,000, whereas ACH transactions can run from $10,000 to $25,000. A monthly limit may apply.
  • A debit card transaction costs more than ACH. Since a debit card processes payments through a card network such as VISA or Mastercard, it is subject to similar transaction fees as a credit card transaction, such as interchange rates and assessment fees.
  • A debit card has the advantage of automatically informing you and the customer if funds are not available. ACH may take a few days. It’s important to note that customers can be charged for insufficient funds when using a debit card.  
  • Each system has different setup procedures. An ACH requires payment details such as a bank routing number and email address. A debit card only requires a pin or signature.

Ways ACH Payments Can Be Delayed

The settlement time period is to verify the funds, and it can cause some delays if the customer’s account is suspended by the processor. There are usually a few reasons for it, such as if the merchant has refused to pay some processing fees or there was a bureaucratic issue. The customer will need to work with their processor to resolve the issues. 

Benefits of Improved ACH Settlement Times

The faster the settlement time, the faster the funds are cleared. Thankfully, many financial institutions allow for accelerated settlement periods,  even same-day or next-day payouts. Your financial institution or a third-party vendor offering this service will need to prequalify you for these options. 

Conclusion

There you have it. You now have a basic understanding of the timing for ACH transfers. As you can see, the timing isn’t instantaneous, but it can still be quite fast – even the same day. And the cost advantage of ACH to you and your customer over other payment methods such as wire transfers, paper checks, and debit card payments is hard to beat. Plus, you can receive ongoing payments – a huge addition to your bottom line. Just be sure to pad the timing a bit to account for settlement times before distributing any funds.

If you are looking to take advantage of ACH, BNG Payments can connect you with this service. We work with the most reliable payment providers in the business to ensure each ACH transaction is safe and reliable.

To learn more, click HERE.