Most people regularly make payments through the Automated Clearing House (ACH) credit system without even realizing it. A common example is sending money to your friend’s Venmo account after splitting the restaurant bill.

ACH credit is an electronic funds transfer that enables fast and secure account-to-account payments. This payment option rose in popularity because it allows companies and individuals to control payment timing and has lower processing fees than traditional banks. According to Nacha, the association that manages the ACH network, payments increased 4.8% year-over-year in 2023, with credits contributing $52.7 trillion (up from $50.2 trillion in 2022). The major drivers of this growth were same-day ACH and business-to-business payments.

Understanding ACH credit transactions is essential for any business that wants to optimize its payment processes and enhance financial security. In this article, you’ll learn more about this form of payment, its benefits, and how you can leverage it for business growth and stability.

What Is ACH Credit?

ACH credit transfers occur when funds are pushed from a payer’s bank account to a recipient’s account through the ACH network. ACH is an interbank fund transferring system that allows users to transfer from one financial institution to another. This system is processed by the US Federal Reserve or The Clearing House, a consortium of major US banks.

Think of the ACH network as a central highway banks and credit unions use to move their customers’ money around. ACH relies on a batch processing system that keeps financial transactions swift and secure.

Because of this interconnectivity, ACH credit enables direct deposits and payments through apps and websites. It makes bank account transactions possible without traditional methods like wire transfers, paper checks, or costly credit card processing fees. For example, a company can use ACH credit to ensure all its employees receive their salaries at the same time without the delays and risks that come with paper checks.

How Does ACH Credit Differ From ACH Debit?

There are two types of ACH transfers: credit and debit. The main difference between them is that debit payments pull funds directly from the payer’s account (without the payer having to initiate any transaction). This is commonly used in recurring payments like subscriptions, utility bills, and rent.

In contrast, ACH credit is payer-initiated, which offers more control over cash flow management. Companies prefer this method to distribute large sums of money, such as year-end bonuses or vendor payments. This precise control and cash visibility helps businesses maintain better financial stability, including avoiding overdraft fees. It also minimizes fraud because payers need to authorize credit payments every time.

How Do ACH Credit Payments Work?

Initiating an ACH credit transaction involves four major steps. This entire process uses the ACH system's advanced and highly monitored infrastructure to track, check, and settle funds between financial institutions:

1. Authorization. The payer grants permission to their bank (the Originating Depository Financial Institution or ODFI) to transfer the funds to another bank account (Receiving Depository Financial Institution or RDFI). This step most often occurs online via a mobile banking app or digital platform. The payer provides the payee’s account information and the target settlement date.
2. Submission. The ODFI submits the required transaction details, including the routing number and bank account number, to the ACH network in batches.
3. Processing. The ACH network facilitates the verification and routing of these funds to the RDFI. If there are no errors or red flags, the financial institutions involved settle these funds.
4. Completion. The RDFI deposits the funds into the payee’s account, typically within 1-2 business days or same-day (with additional fee), depending on the processing time set between the involved banks.

5 Practical Applications of ACH Credit

Some of the most common use cases of ACH credit include:

1. Customer refunds. ACH credit refunds (or credit returns) occur when the payment is returned to the payer, sometimes caused by a transaction error (mostly due to incorrect information). This is particularly useful for e-commerce businesses, where customer satisfaction depends on how quickly refunds are processed.
2. Direct deposit or payroll. Companies use ACH credit to deposit salaries directly into employees’ bank accounts.
3. Vendor payments. Businesses can efficiently manage timely supply chain payments, which can improve operational efficiencies and vendor relationships.
4. Tax management. Collecting tax payments and distributing tax refunds are streamlined through ACH credit, which enhances government services and financial operations. This method also makes it much easier for taxpayers to pay on time.
5. Insurance claim disbursement. Insurance companies frequently use ACH credit to release disbursements to policyholders so that these payments are released quickly and securely.

5 Major Benefits of ACH Credit

For businesses, the advantages of using this payment method include lower processing fees and enhanced customer satisfaction and loyalty:

1. Cost efficiency. Although Nacha does not set ACH fees, typical costs range from 15-25 cents, according to a survey by the Association for Financial Professionals. Meanwhile, issuing paper checks can cost between $2 and $4, and credit card payment processing fees are typically 1.5-3.5% of the total transaction value. Wire transfers, while fast, can also come with higher fees that can add up significantly over time, especially for large payment volumes.
2. Advanced security. While not completely risk-free, ACH credit transactions are among the safest payment methods available. They operate within a network with strict security and review standards that protect against fraud and unauthorized access. Nacha’s Rules and Operations Committee also includes the US Treasury and ACH operators like the Federal Reserve Board of Governors.
3. Speed and convenience. With ACH payment integrations into Open Banking solutions, such as APIs and embedded finance, businesses can offer customers unprecedented payment flexibility. Not only can customers make financial transactions online, they can track the status of these payments in real-time. Meanwhile, same-day ACH enables multiple transaction processing within the day, which is crucial for payroll and bill payments.
4. Reduced payment errors. Automating payments minimizes errors that are the staple of manual processing. With ACH credit and Open Banking API integration, once the payment details are set up, the electronic system handles the transactions consistently and accurately, significantly minimizing oversight caused by incorrect inputs. These mistakes can often be expensive and time-consuming to revert, particularly for financial institutions that need to maintain a 3% administrative return rate (returns caused by closed accounts or incorrect details).
5. Reliable cash flow management. Since ACH credit allows precise payment scheduling, this predictability can help businesses forecast their cash flow more accurately. Knowing when funds will be credited to their accounts can help in day-to-day operations and long-term financial planning. 

Streamline ACH Credit Transactions With Trustly

ACH credit is a secure, efficient, and cost-effective electronic payment method that enhances cash flow management and minimizes processing errors. Trustly Pay is an Open Banking solution that can make ACH credit transactions faster and more secure. Our technology enables real-time connections with financial institutions to streamline the payment experience.

In addition, we help billers and e-commerce companies manage recurring payments to elevate the user experience. Our real-time risk engine also guarantees payments at the point of purchase while mitigating fraud.

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