What Is ACH Credit, and How Do ACH Credit Transactions Work?

25 May, 2022
6 min read
Terri Miller, Director of Business Operations
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What you'll learn

  • How does ACH credit work?
  • Learn about the costs associated with ACH credit
  • How will ACH credit work in the future?
  • Should you choose ACH credit?
What is ACH Credit?
How does ACH credit work?
What are the costs associated with ACH payments?
Should you choose ACH credit for your business?
Are ACH Credit and Direct Deposit the same thing?
Is ACH credit the payment for the future?
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ACH (Automated Clearing House) transfers are simple electronic fund transfers which are processed through the Automated Clearing House network. Examples of ACH transfers are: payroll and tax fund deposits. When your salary automatically gets deposited into your account, that’s an ACH transfer.

According to NACHA, ACH Network did nearly $73 trillion worth of transactions in 2021, which shows the importance of the payment system. These types of transactions are mainly used for payroll, direct deposit, tax payment, and other services, primarily in the United States. ACH acts as a financial hub for people who want to transfer their money from one account to another. But what is ACH credit, and how does it work? Let’s find out!

What is ACH Credit?

ACH credit can be defined as payments made when an organization or individual provides instruction to the ACH payment network to move the amount from their account to another account. This can be either a business making payments to their employees for remuneration or when the government moves money to accounts of the citizens.

How does ACH credit work?

To understand this better, let’s take a deeper look at the workings of the ACH processes. In the ACH credit process, it is the sender who initiates the transaction to the bank or the government agency. In the ACH debit transaction, it is the party who receives the amount who initiates the transaction. The ACH credit pushes funds to the payee account, but in the ACH debit transaction, the money is pulled from the account.

What are the costs associated with ACH payments?

In general, when you compare the cost of ACH payments, you will find that it is much lower than other payment methods. The total cost associated with a general transaction completed via ACH payments depends upon several factors. Let’s check out the various aspects that determine the amount you need to pay as ACH fees:

  1. Flat fees and percentages

    A typical flat fee charge for ACH transfers ranges from $0.20 to $1.50 per transaction, while percentages can go up to 1.5% from 0.5%. If your business is categorized into the ‘higher risk’ category, then the amount will be higher.

  2. Account fee

    The account fee is a charge that covers the services offered to maintain your account in the system. This mainly includes—monthly statements, monitoring transactions, and compliance fees. Your service provider collects this amount.

  3. Processing fee

    This fee primarily covers the cost required to send the amount from the ACH network into the recipient’s bank account. For ACH credit, the fee may range from $0.20 to $1.50 per transaction. A credit fee costs more than a debit fee since the dollar amounts for ACH credit transactions are higher. Therefore, credit transactions are considered riskier for any merchant provider.

  4. Other fees

    ACH fees may include the following fees as well:

    • Setup fee: A one-time fee charged by your service provider
    • Monthly fee: Your service provider may charge this  amount for using the ACH network, which ranges from $5.00 to $30.00 per month
    • ACH return fee: When a transferred amount is returned, your service provider will charge a return fee that ranges from $2.00 to $5.00 per return
    • ACH chargeback fee: Whenever a customer raises any dispute, there is a chargeback fee associated with it. This may range from $5.00 to $25.00
    • High-ticket surcharge: If you purchase anything above $5,000, ACH network charges a surcharge amount of +0.25% of the base amount

Should you choose ACH credit for your business?

ACH payment volume grew nearly 74% in 2021 when many businesses adopted this method for payroll processing, tax payment, and more. Apart from a significantly lower fee as compared to credit cards and wire transfers, ACH payment also provides  other benefits for businesses:
  1. Better user experience: 

    You get a ‘Pay with your bank’ option in ACH credit gateway, which is easier to use than credit cards. If you use the latter, there may be instances where you have to manually enter the credit card number along with the expiration date and card verification code. But in ACH, you don’t have to go through all those troubles. You just have to enter the online banking credentials.
  2. Reduced churn: 

    Credit cards have a shelf life of 3 years, whereas bank accounts can be used for an average of 14 years. If your business is connected to your customer's bank account, it’s very unlikely that they will experience any payment churn. Therefore, the revenue of your business will eventually increase with time.
  3. Lower costs: 

    The biggest motivation for any business to use ACH is the reduced cost. ACH payment fees can be as little as one-tenth of a cent per transaction compared to credit cards. Wire transfers on the other hand charges upto $35 per transaction.
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    Source: MSN

Are ACH Credit and Direct Deposit the same thing?

Direct deposit is just another term used instead for ACH credit when the transaction funds are pushed out of your account.

Direct deposits are of various types—electronic tax refund payments and social security payments, which are mainly used by retirees.  Many B2B businesses worldwide use ACH direct deposit for money transfers.

Is ACH credit the payment for the future?

Growth of ACH Payment in 2021

In 2021, a surge of 7.3 billion payments was observed, which totaled a value of $18.1 trillion.

Due to technological innovation, businesses worldwide are likely to switch over to ACH from the traditional methods. They’ve completely remodeled the instant account validation method and identity verification process, attracting a new set of customers.


Q. How long does ACH credit take to clear?

As per NACHA, ACH credits are processed within one business day.

Q. What is the difference between ACH Credit and Direct Deposit?

There is no significant difference between ACH credit and direct deposit, since the former is just another term used for ACH credit.

Q. What is the difference between ACH Credit and ACH Debit?

ACH credit is initiated by the sender, whereas ACH debit is initiated by the receiver.

Q. Can an ACH credit be reversed?

Yes, an ACH credit can be reversed under certain circumstances, which must occur within five business days of the initial date of transaction.

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