ach credit

ACH Credit: a Comprehensive Guide

What is ACH Credit?

Every time you get paid electronically or autopay a bill, you’re using Automated Clearing House (ACH) processing. The Automated Clearing House Network, managed by Nacha, provides a way to directly debit or credit consumer and business bank accounts using account and routing numbers.

An ACH credit transaction is a payment that is pushed from one bank to another across the ACH Network. The payer initiates the transfer and pushes the funds out to the receiving deposit account.

One example of an ACH credit payment is when an employer instructs the ACH network to electronically push funds from their account into employees’ bank accounts. Another example is when a consumer digitally pays their credit card bill. ACH credit payments also occur when one friend makes a peer-to-peer (P2P) payment to another through a payment app.

What is the Difference Between ACH Credit and ACH Debit?

With an ACH credit transaction, the person (the “originator”) who makes the request, “pushes” funds from their account to a receiving bank account. Conversely, an ACH debit transaction is when the originator “pulls” the funds from an account, with account holder’s permission. An example of an ACH debit is when utility providers or insurance companies automatically remove payment funds from your checking account every month.

Growth in ACH Credit Transactions

The ACH Network experienced significant growth in 2021, with 12.7 billion credit payments valued at $47.3 trillion.1 ACH credit transactions were already on the rise over the last few years due to their convenience and reliability, but the pandemic accelerated this shift even more, with many businesses, consumers, and governments utilizing electronic payments.

Working with partners in government, financial institutions, and ACH Operators, the ACH Network handled 143 million economic impact payments, 182 million Advance Child Tax Credit (ACTC) payments, and hundreds of millions of unemployment benefits, all by direct deposit in 2021. Businesses in particular benefited from switching from paper payments to ACH payments during the pandemic, experiencing lower processing costs and less hands-on work for accounting teams. The momentum of ACH credit payments continues to surge as more consumers experience the benefits of being paid electronically.

How Does ACH Credit Work?

To better understand how ACH credit transactions work, let’s walk through an example of an Automated Clearing House transaction where one bank pushes funds to another.

  1. The Originating Depository Financial Institution (ODFI) begins a transaction.
    The bank account number and routing number of the Receiving Depository FInancial Institution (RDFI) are needed for the ODFI to start a transaction. The amount to be sent and the target settlement date are also required.
  2. The ODFI delivers these requests to the ACH Network
    The ODFI batches the ACH transaction with others to be sent out to The Federal Reserve or a clearninghouse at regularly scheduled times every day.
  3. Payments are processed.
    The Fed or clearinghouse receives that batch of ACH transactions and automatically sorts through it to make transactions available to the intended RDFI.
  4. Money reaches the RDFI.
    ACH files arrive at the RDFI. The money is credited to the appropriate accounts, and the transaction is effectively settled. It generally takes two business days for credits to reach the designated accounts unless the ODFI pays an extra fee for same-day processing.

Are there fees for ACH Credit Transactions?

Most ACH credit transactions, including payroll direct deposits, are free, but whether or not fees may apply depends on the bank. Some banks may charge a minimal fee no more than a few dollars per transaction, but compared to the upwards of $30 fee for a typical electronic wire transfer and credit card fees, the savings quickly add up. Some factors that influence ACH fees include the number of ACH transactions processed per month, the size of transactions, the likelihood of transactions being returned, and the account validation method being utilized.

Are ACH Credit Transactions Secure?

There are security risks and security advantages to using ACH, just like any other form of payment. For example, a criminal can access a commercial account, create an ACH file, and make a payment to an originator, before the fraud is ever discovered.

The National Automated Clearing House Association (Nacha) lists several different types of fraud to be aware of, including scammers pretending to be the FDIC and "money mule scams."

But ACH has several security advantages, such as eliminating paper checks, scheduling regular payments, reducing human error, and avoiding the problems of card skimmers often found on retail credit card terminals.

What is an ACH Credit Refund?

Occasionally merchants need to reverse ACH payments. While Nacha rules have strict ACH credit refund guidelines ACH credit transaction reversals  are authorized for four reasons:

  1. payments were made in the wrong amount
  2. payments were deposited in the wrong account
  3. there was a duplicate deposit
  4. there was an incorrect settlement date

The ODFI has up to five banking days from the requested settlement date to deliver a refund request.

The Business Benefits of ACH Credit

Businesses that use an ACH processor experience faster, simpler, and more secure payment processing than those that utilize other types of traditional and digital payments. The benefits of business-to-business ACH transactions include:

  1. Zero processing fees
    Typically free of any processing fees, business-to-business ACH transfers are ideal for businesses that must make frequent payments to a number of different clients.
    With automatic processing of all payments, ACH transactions are faster and more efficient than electronic wire transfers, credit card networks, paper checks, or cash. Because money moves faster between banks, people are typically paid faster and businesses can eliminate manual processes and save on costs and fees.
  2. Cost-effective transaction fees
    Other electronic payment methods like wire transfers or credit card processing come with higher transaction fees compared to B2B ACH payments. Transfers on the ACH Network are usually free, but depend on the policies of the financial institutions involved in a transaction.
  3. Speed
    Since ACH credit transactions are electronic and processed in batches, they offer a faster and more secure way to move more money at once to various accounts compared to wire transfers, and especially paper checks. Funds are often made available almost instantly as transactions are finalized. With ACH direct deposits, payroll processing is streamlined, so employees get paid faster and don’t have to wait for a check to clear.
  4. Simple setup
    The only required information to initiate a B2B ACH payment is the bank of account number and routing number of both parties involved. This not only makes setup easier for clients, but more secure than credit cards whose numbers change more frequently than direct bank account information.
  5. Easy-to-use platforms
    Businesses don’t have to worry about operating a complicated payments system – ACH processors are designed with customer experience in mind, and provide everything needed for payment processing in one place.
  6. Easy access to electronic payment records
    Businesses can quickly send and receive payments to vendors and suppliers while keeping electronic records of all transactions.
  7. Increased security
    Bank account verification and fraud detection provide protection and security for ACH credit transactions.

Envestnet | Yodlee and ACH Credits

How Envestnet | Yodlee and Nacha Work Together

Envestnet | Yodlee uses the ACH Network to empower organizations with flexible ACH Payment Solutions that get people paid faster, save on costs and fees, and eliminate manual processes. Our proven solutions like account verification and payments support businesses with safer and faster processing of ACH, so you can have peace of mind that payments are reliable, flexible, and secure.

Envestnet | Yodlee’s payment solutions like bank account verification help to mitigate fraud by providing bank account validation and identify verification, and are crucial to enabling a businesses’ immediate access to money and transaction history. Many companies are using Envestnet | Yodlee Account Verification to speed their account linking and verification process. See how.

As a Nacha Preferred Partner, Envestnet | Yodlee is committed to innovating new technologies and guidelines on the ACH Network so businesses can continue improving their payment processing methods while offering customers the best payment options available.