ACH Payments – What Is It and Should You Use It?

ACH Payments sounds at first like just another one of these weird financial terms out there. But, as is the case with all of these different financial terms and the methods that they refer to if you know what they mean and how to use them you can make a big difference for yourself and your own actions when it comes to your finances. So, what are ACH Payments?

1. What are ACH Payments? In short, ACH stands for Automated Clearing House. As such, ACH Payments are part of the Automated Clearing House Network and are channeled through that network upon issuance. It is a centralized system that helps funds travel between bank accounts and they come with quite a few benefits – both for those who use them for payments, such as consumers, as well as merchants who want to collect payments via an Automated Clearing House system. Most importantly, ACH Payments tend to be much more economical than other types of payments.

On top of that, you can automate ACH Payments, which can help you streamline the process of payments considerably. Finally, since ACH Payments are being conducted electronically, they are also much easier to keep track of with your bookkeeping. In other words, ACH Payments come with a lot of advantages, which is why the method is very widely used already. Chances are that even you already use these types of payments in one way or another, even if you are not aware that you do.

For example, if you pay wages to your employees via a direct depositing mechanism, or if you, as a consumer, pay your bills from a checking account, then you are most likely using an ACH Payment for doing so. Back in 2018, there were already more than 23 billion ACH payments made, according to the organization that administers the network.

2. How do ACH Payments work? ACH Payments come into play when you send money between bank accounts. It applies to stuff such as you paying a service provider as a customer, you paying an employee in their checking account as an employer, you conducting a transfer of funds between different banks, you paying a supplier of your business for products that you are going to use, or even you sending your tax money to the IRS.

The way it works is that the party who initiates the ACH Payment needs to have the bank account information of the other party. This is true whether the initiating party is the one who requests money or sends money. The account information needed to initiate an ACH Payment, both when you request or send money, is first the name of the bank or credit union who should receive the money. Second, you need to know which type of bank account is involved in the transaction – namely a checking or a savings account. Third, you need the bank’s ABA routing number and finally also the account number of the other party involved.

Once you have all this information ready, you can start the transfer.

3. Why are ACH Payments good? ACH Payments offer a ton of benefits for all parties involved. Most importantly, they are cheaper than their alternatives. ACH Payments are usually entirely electronic. The only time when they are not completely electronic is when someone converts a paper check into an electronic payment first, but this entirely is optional.

This means that you will not need any paper, ink, transportation of checks, and resources to process these checks. Instead, everything can be handled from your workstation. On top of that, the fact that everything is electronic makes bookkeeping a lot easier. Because every electronic transaction is automatically recorded the system is less prone to mistakes, it can be processed with financial management tools and it can be easily replicated and searched through.

4. The benefits for businesses. For businesses, ACH Payments are also great because they are super easy to take care of. No more payments getting lost, and they get processed much faster, too. All these benefits make ACH Payments less expensive than even taking credit card payments. The only downside of ACH Payments compared to credit card payments is that with ACH Payments, you will not get the real-time response concerning payments that a credit card terminal can give you.

5. The benefits for consumers. For consumers, ACH Payments also come with a significant number of advantages. First, ACH payments are super easy to do. No check-writing, no credit card charges, nothing – you simply pay directly from your bank account, and the payment is done. Also, you can automatize a lot of payments through the ACH system, which is particularly convenient when it comes to bills that are recurring monthly anyway.

As you can see, ACH Payments come with a ton of advantages, both over traditional checks, but even over credit cards.