Woman wondering how ACH works

In a nutshell, ACH Payments are electronic payments that go through the Automated Clearing House (ACH) network. The concept can be confusing, which is why we’ve broken down the process further in this post. We’ve also covered some reason why an ACH payment might be delayed and common timeframes with processing. 

Process of ACH payment

With ACH, money is transferred from one bank account to another via a centralized systems that directs funds to their final destination. An ACH payment is beneficial to merchants and consumers alike, as they’re inexpensive, can be automated, and are easy to keep a record of. 

ACH payments are everywhere. If you’re paid through direct deposits, you’re utilizing the ACH system. If you pay bills electronically through a checking account, that’s ACH at work. Even when you transfer funds from one account to another, ACH is helping, In 2018 alone, there were 23 billion ACH payments made.  

In order for this process to take place, the organization requesting a payment (to be sent or received) will need the bank account information of the other party involved in the exchange. Think about when you’re on-boarded to a new job. Right off the bat, they ask for the name of your bank, type of account, routing number, and account number. Without this information, they wouldn’t be able to transfer funds into your account come payday. 

An easy identifier for ACH payments is that they’re often conducted electronically from start to finish. There are rare occasions where merchants might convert paper checks to electronic payments, but paper checks have phased out for the most part. 

Can ACH be peer to peer? 

Unfortunately, direct person-to-person ACH payments aren’t easy to set up. ACH payments are more often done between a consumer and business. However, apps that act as an intermediary between peers have made the process easier. Where Paypal used to be the main player, new apps like Cash and Venmo have brought peer-to-peer electronic money transfer to the masses. These apps act as the front-end to your bank account, utilizing ACH to make the transactions for you.

Why are ACH payments so popular? 

The main benefits to ACH payments are that they electronic (use fewer resources) and they make it simple to track income and expenses. You’re able to track every purchase you make and sum you send via an electronic record (or financial management tools). 

Another key perk is that there’s less lag time with transactions. Unlike a check, which might need to be mailed, an electronic payment takes place almost immediately. There are no manual deposits needed and less likelihood that a payment will get lost. Plus, no written record keeping that can be tedious and susceptible to errors. 

From an economic perspective, ACH payments are less expensive than credit cards. They cost less to process for a business, especially when collecting several recurring payments. Plus, automation cuts down on hours of manual labor. One downside with this is that there isn’t a real-time approval or denial response like you get with a debit or credit card. 

A final to ACH payments is that they can be done remotely. Businesses can accept payments from anywhere, the same way a debit or credit card can. You can set up automated payments, so you never have to worry about making your utility payments, student loan payments, etc. 

Reasons for ACH delay

Though most ACH payments can take place within hours or minutes, there are some instances where an ACH payment may be delayed. Weekends and holidays can play a role in delayed payments, and timeframe can vary based on the bank. 

If it seems like there’s a 2-3 day delay with your payment, it could be because a third party service provider is in use. Since the third party does the debit first, it has to make sure it’s paid the next day before it sends the credit. If there’s a kink in the chain, this can slow the whole process down. 

It might also be that the ODFI (Originating Depository Financial Institution) did not send the request on the same day that you requested the transfer. This delay may be due to risk management; During the hold period, you can still inform the involved parties about unauthorized transfer requests and prevent money from ever unfairly exchanging hands. Payments may also be delayed if there’s a premium or faster service that the institution wants you to invest in. If you want next-day ACH, you have to pay for it.

If you decide to apply for a loan, get approved and accept your offer, your deposit will be made via ACH. With fast and secure technology at our fingertips we are able to provide you with a seamless experience. If you’re in the marketing for an online personal loan and are needing money rather quickly, consider Helix by Lead Bank as your trusted provider.