Your Guide to ACH Credits and ACH Debits

Each year, more and more businesses take advantage of ACH transactions for faster payments and lower-cost transactions. If you have looked into ACH for your business, you may have read the terms ACH credits and ACH debits. They may sound like similar concepts, but in reality, each has a different meaning, and knowing them can save you substantially as a business owner. 

In this article, we review the ins and outs of ACH transactions and define the difference between an ACH credit transaction and an ACH debit transaction.

What is an ACH Transaction and How Does It Work? Understanding the Automated Clearing House Network

What is an ACH transfer? It is a type of Electronic Funds Transfer (EFT) in which electronic funds are moved through the Automated Clearing House (ACH) network, an electronic network of cooperating US banks offering direct payments between payers and payees. 

The transfer of funds works like wire transfers and standard paper checks by transferring funds from one bank to another without a middle man, making it different from credit card payments and third-party services like Paypal. It also has benefits over wire transfers, credit cards, debit cards, and actual paper checks thanks to its blend of low cost, transaction speed, decreased chances of fraud and theft, ongoing auto payments capability, and eCheck capabilities. It also provides you with greater reassurance of payment by requiring a credit reserve balance before authorization.  

To create an ACH transfer, the payer provides the payee his or her bank account, routing number, some required information such as an email address, and written approval for withdrawing funds. Transactions can be authorized as a one-off withdrawal or as a recurring withdrawal, such as a monthly payment. The automatic payment timing is pre-agreed upon between the customer and you.  

ACH Transactions / Understanding Credit and Debit Transactions

Most ACH transfers fall into one of two categories: credits and debits. Each is defined by how the funds are requested from the payer’s bank. Let’s look at each in category detail using the example of a customer purchasing goods or services from your business.

What is an ACH credit?

An ACH credit is an ACH transaction movement initiated from the payer (the customer) rather than the payee (you). Funds are “pushed” out of the customer’s bank account to yours at his or her request. Like any other non-ACH transaction, a customer sets up a payment for a bill through his or her bank.  

What is an ACH Debit?

An ACH debit is when a payer (your customer) allows the payee (you) to do the work of removing money from his or her account. The customer’s bank is debiting the customer’s account by actively “pulling” money out based on your request based on prior permissions granted by your customer, such as when he or she signs up for automatic monthly payments.

An ACH debit is the most popular form of ACH transaction and is often used by enterprise companies. You may already authorize ACH debits at home when paying an insurance company or cable company.

Difference Between an ACH Debit and an eCheck

An eCheck is one type of one debit payment option. It specifically allows for paper checks to be changed into electronic debits.  

Direct Deposit vs ACH

A direct deposit is an ACH credit because it pushes money from one account to the other. Companies commonly use this form of a financial deposit to pay employees. ACH is now used even more than standard checks. In these cases, the businesses push money from their accounts to the employees’ accounts.

Timing of ACH Credits and ACH Debits

Most ACH credits settle in just 2-4 business days, though customers can make same-day payments for an additional fee. Both timing options depend on the hours of each bank and the time the transfer is initiated. The transactions are done at certain times of the day, also known as batch processing. 

What Is The Cost? Processing Fees for Debit Transactions and Credit Transactions

There are substantial cost savings with ACH. The transaction fees are quite low; in fact, there may be no fees depending on the transaction type, and pricing is lower overall than other services such as credit cards, checks, or wire transfers. 

In general, banks don’t like moving money out, so they sometimes charge for bank transactions leaving an account. Inversely, they may avoid charging for funds entering the account. Many banks charge basic fees for ACH credit transactions to cover processing and operational costs for outward movements of money, such as $3, but this includes higher dollar amounts such as up to $25,000, making it cheaper than wire transfers and checks. Higher rates may apply for expedited payments.

As a business owner, your costs through the ACH network are often quite low compared to credit card and debit card transactions – as low as 29 cents per transaction.

Overall, it is financially best to have funds pulled from an account (ACH debit) rather than pushed (ACH credit). If fees are required in a sale transaction, it’s good to keep in mind that the fees are not simply a penalty, they also support the ACH network for fraudulent transaction detection, and even then, ACH payments still cost less than other payment options.

These benefits, combined with the ability to take ongoing electronic payments from customers, have made ACH extremely valuable for businesses today. 

Connecting Your Business to the ACH Network

BNG Payments can easily connect you with the ACH Network. Whether you do in-store payments, mobile sales, or online purchases, we can help you take advantage of the long list of ACH benefits for added profit. We can connect your current systems or provide new systems with advanced offerings to make sales processes and cash management initiatives easier.

Contact us here to find out more.