What is an ACH Transfer?

ACH transfer, which stands for “automatic clearing house transfer”, has had a tremendous impact on the payment processing industry. The unique transfer system helps payers of all kinds direct money to where it needs to be in a manner that is both efficient and secure.

Payment processing, in many ways, is the lifeblood of our broader economy. With each passing year, the portion of transactions being made with cash continues to shrink. In order for economic activity to effectively take place—whether at the individual level or at the business level—it is absolutely crucial for all individuals engaged in transactions to have the infrastructure in place for money to actually move.

ACH transfer is significantly more affordable than the alternative these payments are often compared to—the wire transfer. While ACH transfer, in many cases, is free (or just a few dollars at most), wire transfers can cost as much as $30. Because of the ease of ACH transfer and its growing use by banks and other financial institutions, ACH transfer has become an increasingly attractive option for business owners and many others.

If this is your first time learning about the ACH transfer system, you likely have a lot of questions. In this article, we will answer some of the most common questions business owners have about ACH transfer. By taking the time to understand how this innovative payment system works, you can decide if it makes sense for you.

What is an ACH Transfer?

Automatic Clearance House (ACH) transfers are direct transfers, or flows, of funds from one financial institution to another. Currently, there are thousands of financial institutions that are part of a broader, national clearing house network. So long as both the financial institutions of both the payer (making the payment) and payee (receiving the payment) are both a part of this network—as you’ll find with almost every major bank—ACH transfers are possible.

To complete an ACH transfer, the payee will need to know their account number and their routing number. These can be found at the bottom left-hand corner of your check. Payees should only engage in ACH transfers with businesses and organizations that they trust. Once all information has been provided, an ACH transfer—which will appear in a bank statement as an electronic funds transfer (ETF)—can be initiated. Usually, the transferred funds will be accessible in a few business days. In some cases, depending on payment processing systems and the institutions involved, the money can appear on the very same day.

How Do ACH Transfers Work?

There are two main steps involved in completing an ACH transfer: initiating the payment and receiving the payment. In the initiation phase, the payer must receive clearance from the payee, along with a signed ACH transfer forms (recorded verbal agreements may also be allowed). Once the payer has gained approval, they can initiate the payment and their bank will direct the funds to be approved through the broader clearance house. The way these payments are distributed (recurring, one-time, or time-specific) can be customized, as needed.

Following the authorization of the initial transaction, the payee will then be ready to receive the payment. Once this step in the process begins, funds will be pulled from the payer’s account and transferred to the payee’s account. The amount of time it takes for an ACH transfer to be completed can vary; some institutions offer same-day transfers, but in other cases, the transfer can take as long as five business days.

What are the Different Types of ACH Transfers?

ACH transfers can be categorized in two ways: ACH credit payments and ACH debit payments. Often times, these payments are referred to as push payments and pull payments, respectively.

With an ACH credit payment, the person initiating the transaction will be the payer. In other words, the person intending to make the payment will push the payment out of their account and into the authorized receiving account.

In other cases, however, the ACH transfer will be initiated by the party on the receiving end of the transaction (payee). When this occurs, the receiver (who has received prior authorization) can summon the amount due, as needed. These sorts of payments are ideal for recurring expenses, such as utility bills, mortgages, and others. If you notice unauthorized funds have been pulled from your account, contact your financial institution immediately.

What are the Benefits and Drawbacks of Using ACH Transfers?

According to the Federal Reserve, “ACH payments are estimated to have been 5.6 billion by number, with a value of $12.90 trillion in 2018.” The use of ACH payment processing solutions has been steadily increasing, growing at a rate of about 7 percent per year.

Naturally, there are many benefits of choosing to use ACH transfers:

  • Affordability: ACH payments are typically more affordable than credit and debit cards. While issuing paper checks is relatively low-cost as well, it does involve more time and more effort.
  • Security: ACH transfers, especially with payment processing firms like Smart Payables, are the most secure method for making payments. According to PNC Bank, these payments are the least susceptible to both attempted and actual fraud.
  • Efficiency: with options such as recurring or pre-planned payments, faster processing times, and various automated features, ACH payment processing gives payees and payers an option that is both fast and accurate.

Furthermore, at least one survey of bank users indicated that about half of all people prefer ACH transfer to other payment options. There are very few real drawbacks of using ACH payments, though some individuals prefer same-day transfer options (such as a wire transfer or cashier’s check), which is only sometimes available.

Ultimately, offering ACH transfers is beneficial for both payers and payees. These payment processing systems have continued to become more popular, widespread, and improved over time. With new technologies and institutional options becoming available every year, having a consistent and reliable infrastructure such as ACH transfer can be extremely valuable.


ACH transfers help businesses and other organizations or individuals distribute funds to where they need to be. By investing in better payment processing solutions, your business can improve its operational excellence and, ultimately, improve its bottom line.

Interested in learning more about ACH payments and direct deposit automation? Please, feel free to contact the Smart Payables team. We’ll gladly answer any questions you might have and help you learn more about processing.

Author at Smart Payables | (720) 287-0030 | Website | + posts

Founded in 2005, Smart Payables offers a full range of accounts payable payment solutions including outsourced check printing and mailing, document and statement printing and mailing, ACH direct deposits + more. Our highly experienced software developers and intelligent printing teams specialize in secure, enterprise-grade payment options that are HIPAA, SOC 1 Type 2, and ISO compliant. Our mission is to help businesses and large organizations implement secure, innovative technology that will reduce overhead and improve business operations and capabilities.

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