Have you ever heard of the term ACH credit before? Do you know what it stands for? Well, whether your answer is yes or no, there is a good chance that you’ve either received or sent one before. That’s because it goes by several other names, like “direct deposit” and “peer-to-peer payment”.<\/p>\n\n\n\n
Thanks to their usefulness when paying utility bills, settling payrolls, or even directly depositing tax refunds, ACH credits are favored for being a secure and reliable way to send money directly to someone’s bank account. So, if you want a dependable payment method that doesn’t go through an intermediary, the answer could be ACH credits.<\/p>\n\n\n\n
\nKey takeaways<\/p>\n\n\n\n
ACH stands for Automated Clearing House.<\/p>\n\n\n\n
The ACH Network processes two kinds of ACH transactions: direct deposits and direct payments.<\/p>\n\n\n\n
ACH allows users to move from one bank account to another easily and inexpensively.<\/p>\n\n\n\n
Examples of ACH transfers include getting your pay through direct deposit or paying your bills online through your bank accounts.<\/p>\n<\/blockquote>\n\n\n\n
What is ACH?<\/strong><\/span><\/h2>\n\n\n\n
The ACH Network stands for Automated Clearing House Network. It is a system where funds are electronically transferred from one party to another and allows for safe money transfers online, such as for direct deposits or bill payments.<\/p>\n\n\n\n
In other words, ACH is an electronic money network that connects various financial institutions to facilitate payments between accounts, regardless of which banks those accounts belong to.<\/p>\n\n\n\n
There are two types of transactions on the ACH network: ACH credits and ACH debits. The term ACH credit specifically refers to the type of transaction in which money is \u201cpushed\u201d from an originating account to a destination account. An ACH debit transfer, meanwhile, involves a receiving account \u201cpulling\u201d money from the source account.<\/p>\n\n\n\n
A typical example is using ACH credits for payroll: the employer pays employees by “pushing” electronic payments into their checking accounts. In addition to paychecks, ACH credits can also include government benefits, refunds, or withdrawals from payment services like Venmo.<\/p>\n\n\n\n
ACH credit vs ACH debit: What is the difference?<\/strong><\/h2>\n\n\n\n
ACH credits are one of two types of ACH transfers, the other being an ACH debit (or ACH withdrawal).<\/p>\n\n\n\n
While ACH credits are “push” transactions, ACH debits pull funds in. In other words, the person making a payment allows the person they’re paying to withdraw money from their account.<\/p>\n\n\n\n
ACH debits are commonly used for recurring payments like electric bills and mortgages. The payer gets the convenience of automatic payments from their checking account every month, and the receiver doesn’t need to process manual payments.<\/p>\n\n\n\n
If you’re sending money, you’ll likely use an ACH credit. But if you have a supplier or vendor to whom you make regular payments, they might ask you to set up ACH debits to make processing the payment smoother with no lift on your end.<\/p>\n\n\n\n
How do ACH credits work?<\/strong><\/h2>\n\n\n\n
Every Automated Clearing House payment (ACH payment) runs through the US clearing house system, a network of United States financial institutions. The network includes the Federal Reserve and is overseen by the National Automated Clearing House Association (NACHA). The ACH network is primarily used to make domestic electronic payments between US banks and credit unions.<\/p>\n\n\n\n
Each person or business has to authorize the funds transfer. This includes the party making the ACH payment and the party receiving the money. You can only move money to or from someone else’s bank account with their permission. In addition, many authorization forms allow the payer to take money back if they send too much in error.<\/p>\n\n\n\n
Once the authorization is complete, whoever is initiating the ACH payment instructs their financial institution to either push the funds out (an ACH credit) or pull them in (an ACH debit). This can be done manually or set up as a recurring transfer.<\/p>\n\n\n\n
Behind the scenes, the originating depository financial institution batches all of its ACH transfer requests together and sends them to a clearinghouse that verifies the transfers. The clearinghouse then sends each transfer to the receiving depository financial institution.<\/p>\n\n\n\n