ACH (Automated Clearing House)
ACH (Automated Clearing House) is an electronic network for processing financial transactions in the United States. It handles direct deposits, bill payments, and bank-to-bank transfers in batches, making it a low-cost alternative to wire transfers and paper checks.
ACH Definition
ACH (Automated Clearing House) is an electronic network for processing financial transactions in the United States. It handles direct deposits, bill payments, and bank-to-bank transfers in batches, making it a low-cost alternative to wire transfers and paper checks.
ACH in Practice
A small business sets up ACH direct deposit for payroll instead of writing checks. Each pay period, the funds move electronically from the company's bank account to employees' accounts within 1–3 business days. The business saves time, reduces check-printing costs, and employees get paid faster.
Why It Matters
ACH is the backbone of everyday business payments. Payroll, vendor payments, recurring bills, and customer collections all run on the ACH network. Understanding ACH helps you manage cash flow timing — payments aren't instant, so you need to plan around the 1–3 day settlement window.
For businesses receiving payments, ACH is significantly cheaper than credit card processing. Accepting ACH from clients can save 2–3% per transaction compared to card payments, which adds up fast on large invoices.
FAQ
Q: How long does an ACH transfer take?
A: Standard ACH transfers settle in 1–3 business days. Same-day ACH is increasingly available for an additional fee.
Q: What's the difference between ACH and a wire transfer?
A: ACH is batch-processed, cheaper (often free), and takes 1–3 days. Wire transfers are processed individually in real time, cost $15–$45, and settle the same day.
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