If you’re a businessman or a bank clerk, and your standard day involves a lot of transactions, you might be familiar with the ACH payment system. However, not everyone is familiar with what it is or how it works. The majority of people have never even heard about it.
The fact is that it’s essential for every modern-day transaction used by both consumers and companies. To fully understand the topic of ACH payments, let’s review what they are, how they work, and when we use them.
What Is ACH?
Let’s start from the basics, as you’re probably wondering what an ACH payment is, right? ACH is an electronic network designed for processing and clearing transactions. A computer-based settlement facility that performs automated transactions between financial institutions within the United States.
If you’re unaware of technical terms and abbreviations in this field, you might be a bit confused. So what does ACH stand for? ACH stands for the Automated Clearing House. ACH processes both credit and direct transfers. Of course, in the case of direct debits, the payee must inform the bank that they will draw the funds from the payer’s account.
They must also have authorization from the payer. They access their account through a bank and draw a specific amount. This is also known as a pre-authorized payment or PAP. Because an agreement has been made between two parties (the payee and the payer), the bank simply processes the transaction using ACH. They don’t require any further approval, except for the payer’s authorization to proceed with the process.
What Is the AHC Number and Where to Find It?
The AHC routing number can be easily located on a check. It represents a bank in which you opened an account. It usually consists of nine digits and can be located in the bottom left corner of your check. The receiving bank will request it, as it is required for bank-to-bank transfers.
When Do We Use ACH Transfers?
Now that we understand what ACH transfers are, let’s explore when to use them. As stated above, these automated transfers are conducted every time you attempt to send money from one bank account to another. But this isn’t the only case where AHC transfers are being used. Whenever you go to pay your bills at a post office, the ACH transfer will facilitate that transaction. The same rule applies when paying taxes, mortgage, or any monthly-based utility bills. Because it’s an automated clearing house, the post office will use ACH to send money from its account to the payee’s designated location.
Another scenario in which AHC transfers are being used is when you receive benefits from Social Security or get a payment from your employer. There are also annuity benefits, interest payments (for credit or similar agreements between a client and a bank), government benefits, and other similar benefits.
If you didn’t know how to send an ACH payment before, now’s the time to learn. Here are the steps:
- Choose your financial institution. Whether it’s through a website, app, or the bank itself, the process should be user-friendly and fast.
- You’ll need to enter your account number and routing number. If you go to a bank, there’s no need for you to have a bank account, as they already have access to it.
- Once you approve it, the transaction can proceed through ACH with your bank, RDFI, and ultimately reach the payee.
As you can notice, the process is fairly easy and effortless. The money route will always be bank, ACH, RDFI, and the payee’s account.
Benefits of ACH Transfers
Businesses prefer ACH transfers more than any other type, and you should too. Why? Because it’s not as time-consuming as writing a check, it’s fast and safe.
- The first and most obvious benefit is that there are no fees.
That’s exactly why the majority of business owners prefer an AHC transfer – they make the payment to a number of individuals without incurring any transfer fees.
- It’s fast, and the transfer is usually complete the next day.
Because banks don’t have to approve each transaction individually, but instead approve a group of payments, the clearing is done faster. Usually, the payee will get the money by the next business day. So, if the transfer is activated on Friday, the payee will receive the money in their account on Monday, first thing in the morning.
- It’s safer than conventional money transfer procedures.
Because ACH transfers are being managed by the National Automated Clearing House Association (NACHA), there is little room for error. NACHA was established in 1974 in the US. Several clearinghouses were involved in setting the rules and managing transfers between financial institutions. Every transaction that goes through a bank in the US is regulated by NACHA policy.
Are There Any Downsides to ACH Transfers?
Like any transaction, ACH transfers have some drawbacks. Depending on what you plan to use ACH transfers for, you might find these cons irrelevant or game-changing.
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Transaction Limits
The first one is that some banks will put a limit on the amount you can send. Some banks have daily, monthly, or other transaction limits on the amount that can be sent per transaction. It’s best to check with the bank before you try to send a large sum of money online. If you’re using an app from your bank, inquire about the transfer limits.
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They Don’t Include International Transfers
Another downside to ACH transfers is that you can’t send money internationally. There isn’t a global ACH. For example, the equivalent of ACH in Europe is the Single Euro Payments Area (SEPA). It regulates transactions in 35 countries, with the exception of some territories.
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You’ll Need to Time Your ACH Transfers
They are fast and reliable, but only if you time them right. For example, the clearing time in one bank isn’t always the same as in the next bank. To ensure that the payment is deposited into the payee’s account on the next business day, please verify with both banks regarding their clearing times.
Alternatives To ACH Transfers
There are a couple of alternatives to ACH transfers that you might find more or less appealing, depending on your personal preference. Of course, the nature of your transfer can also affect your preference for alternatives to ACH.
You can use paper checks, as they are the most convenient method to wire money. Other alternatives may include credit cards (be sure to check which are accepted by the app), or online services like PayPal, or others.
For more information on writing online checks, alternative methods for transferring money online, or other online services, please visit our website.
Last updated: September 2025