What Are ACH Transactions And How Do They Work?

An Overview

Banking is much faster and more efficient in the modern era. Rather than dealing with cash transactions or transactions through checks and cards, you can now transfer money electronically through ACH, also known as the Automated Clearing House

The ACH network has been in operation for decades now, and it’s easily one of the safest and most convenient methods of transferring money. The ACH network can also be used internationally, making it easy to transfer money worldwide, all without relying on credit cards, checks, or wire transfers.

If you’re looking for a solution to make accepting ACH transfers easier, Dots can help. In the meantime, we’ll break down ACH payments in today’s guide where we’ll dive deeper into ACH payments, how they work, and more.

What is Automated Clearing House?

The Automated Clearing House is a network that allows money to be transferred electronically between bank accounts. The organization that runs it is called NACHA.

The Automated Clearing House network was started in 1974 and it has now become a standard and reliable way to conduct monetary transactions across the globe. The transactions include consumer, B2B, government, and more. The ACH network is so widely used that over $72 trillion worth of funds were transferred through it in 2021.

Now that we’re familiar with what Automated Clearing House is, let’s talk about some of the biggest benefits of using ACH transfers.

The Benefits of Making an ACH Transfer

Although it can be easy to do a wire transfer or use a credit card to make a payment, there are benefits to using an ACH transfer that other payment methods don’t offer. Let’s take a look at some of the primary benefits of making an ACH transfer:

  • ACH is less expensive - Typically, payments made through a card network are expensive, charging you a flat fee or a percentage of the total transaction. This can quickly add up when you’re making large payments. ACH is much cheaper, as you can transfer the funds directly between accounts.
  • ACH is easy to use - There are no complicated processes for receiving ACH payments. You can simply create an ACH mandate, send it to your customer with a link, and then the payment can be made when they fill out the form.
  • Payments rarely fail - With ACH, you’re getting the payment directly from a bank account. Compared to credit cards, which can expire or be canceled, a bank account is a much more reliable form of payment.
  • ACH Debit is highly customizable - ACH Debit, which we’ll dive into in a bit, is highly customizable and lets you choose transfer dates, how often money is pulled, and the amount that is charged. You can fully automate this process too, so you spend less time on accounts receivable and accounts payable. This keeps payments on time, accounts balanced, and frees up your teams to focus on other tasks. In short, you spend less time collecting money and more time making it.
  • Reduce security risks - Checks, cash, and even wire transfers can be very susceptible to fraud. With ACH payments, you have greater security because the money isn’t processed through intermediaries or sent through the mail. It’s safer for both you and your customers.
  • Reduce errors - Human error can cause issues with accounts, leading to time and resources spent trying to track down the errors and resolve them. ACH transfers can be automated, lessening the risk for human error.
  • Improve the customer experience - Customers tend to like ACH transfers more than other payment methods because of how convenient they are to use. Methods like paper checks can be arduous and can make things more difficult on both the business and the customer.

These are just a few of the main benefits of ACH transactions. Of course, there are many other reasons that businesses choose ACH transfers over other payment methods.

Next, we’ll look at types of ACH payments.

The Different Types

Now that we understand what ACH payments are, let’s talk about the different types of payments. There are two main categories of payments. You can also adjust the time that it takes for a payment to go through. Let’s take a look at the two main types of payments first.

Direct Payments

Direct Payments are when you electronically move funds to make a payment or receive a payment from an individual or a business. This could be buying a product, paying a bill, donating money, sending money to a friend, subscribing to a service, etc.

Direct Deposits

Direct Deposits are payments from businesses or government agencies made to a consumer. A common direct deposit would be getting paid by payroll, receiving a tax refund, receiving benefits from the government, etc.

Payment Processing

Both direct payments and direct deposits are subject to payment processing times. Although ACH transfers can be faster and more convenient than other methods, there are times when standard processing might not be quick enough. Let’s take a look at the processing times for ACH payments.


Direct Payments and Direct Deposits are the two types of transactions you can do, and you can send these payments through 3 timeframes: standard, 2-day, or same-day. The standard time for an ACH payment to process is three to four business days. If you’re in no rush to push a payment through, standard processing is usually fine.


Many banks now allow 2-day ACH payments, so you can process an ACH payment within 48 hours. Remember that you’ll likely need to get your payment request submitted before the bank’s cutoff times for 2-day processing.

Same Day

There are also banks that allow same-day ACH transfers, turning the payment around in 24 hours or less. These payments need to be submitted before the same-day cutoff for that day. If you’re needing payments ASAP, same-day payments are your best option.

ACH Debit vs. ACH Credit

Another important thing to know is the difference between ACH debit and ACH credit. The differences between the two are subtle, but it’s still good to be familiar with the definitions.

An ACH credit is a transfer that pushes funds into a bank account. In other words, the person making the payment enacts the transaction and sends the funds to the person being paid. An example would be paying for a product or making an individual payment for a bill.

An ACH debit is when funds are pulled from a bank account. Instead of the person making the payment triggering the transaction, the payer gives someone permission to pull the payment on a recurring basis or at a certain date. An example would be a recurring subscription payment or approving payment for an invoice that is due at a later date.

ACH debit makes it easy to automate accounts receivable and accounts payable, reducing late payments and making sure that the accounts are balanced and paid.

How Long Does it Take To Process?

As mentioned, there are three different possibilities for ACH transaction processing. The standard time for payment processing is three to four business days. Banks typically simplify ACH payments by processing them in batches, a few times a day. To simplify things even further, many banks will process all of their ACH payments for the day at once.

If a bank accepts 2-day transfers or same-day transfers, the payments will need to be requested before the cutoff time for the day. This cutoff time will depend on the bank and the time zone you’re in. If you’re needing a 2-day or same-day transfer, make sure to find out what the cutoff time is so you can make your request before then. Depending on your needs, you may want to try and opt for faster processing, though the standard is usually the easiest to plan for.

If you’re needing an easy way to start sending and receiving ACH payments through your business, Dots can help.

Get Started With Dots Today

Dots is the easiest way to offer multiple payout options for sending and receiving payments. With the Dots API, you can provide your customers with a unified platform for all payments, allowing them to send ACH, PayPal, Venmo, bank transfers, and nearly any other form of payout you can think of. All with one simple solution.
Dots also makes it easy to send payments through your preferred payment processing option. Pay contractors, international employees, and anyone else on your accounts payable. If you’re looking to offer multiple payout options, including ACH transfers, without the hassle of creating multiple payment flows, Dots is your answer. Ready to learn more about Dots and see how we can help your business? Schedule your free demo today.