What does ACH Stand For?

Electronic Payments Made Easy

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In banking, ACH stands for Automated Clearing House, which is a network used for electronic payments and money transfers. ACH is a way to move money between banks without using paper checks, wire transfers, credit card networks, or cash.

References to ACH can mean several things, depending where you see it.

On your bank statements (or transaction history), ACH means that an electronic payment was made to or from your account using your checking account information.

Common examples of ACH transfers are listed below. In order for any ACH transfer to move funds to or from your account, you need to authorize those transfers and provide your bank account and routing numbers.

On your bills, ACH means you have the option to pay your bills electronically. Sometimes these payments are known as eChecks, EFT, or similar. Instead of writing a check or entering a credit card number, you can provide your checking account details and have funds pulled directly from your account. In some cases, you control when that happens – in other cases your biller just pulls the funds when your bill is due, so you’ll want to be sure you have funds available in your account.

What does ACH Mean?

What exactly does Automated Clearing House refer to?

Automated: the system is made up of computers that work together to process payments automatically (without you or your biller needing to manually handle the payment).

This is a “batch” processing system that handles millions of payments at the end of the day.

Clearing house: the network uses two central “clearing houses” – in other words, everything gets funneled through those clearing houses.

Examples of ACH Transactions

You’re probably more familiar with ACH than you think.

ACH is used for everyday transactions such as:

  • Direct deposit of your wages (from your employer to your bank account)
  • Automatic payment of recurring bills such as energy and mortgage bills (you sign up for ACH payments when you give them a voided check)
  • Payments from businesses to vendors and suppliers
  • Moving money from your brick-and-mortar bank to your online bank

As with any technology, using ACH means embracing the pros and cons. Let’s review those below.

What does ACH do for Consumers?

If you’re a consumer, you may enjoy:

  • Getting paid by your employer quickly, safely, and reliably – no need to get your paycheck to the bank
  • Automating your payments so you never forget or pay late
  • Making purchases online without using a check or credit card – you can be done with a transaction quickly
  • Minimizing the number of pieces of paper floating around with your bank account information

The main drawback for consumers is that setting up ACH payments means businesses have direct access to your checking account. They’ll take the money to pay your bills whether you want them to or not. If you’re short on funds, you might prefer to pay a different way (or pick and choose who you pay) so that the most important bills get paid first.

For more details on how consumers use ACH, read about setting up ACH debit.

What does ACH do for Businesses?

If you run a business, you’ll benefit from:

  • A low-cost, non-labor-intensive way to transfer money
  • Paying employees without the need to print checks or pay postage
  • Getting paid by customers easily, quickly, and regularly – no more cash-flow crunches dependent on when you can get to the bank
  • Processing fees that are lower than credit card swipe fees
  • Getting paid by vendors – or making payments to suppliers – in a way that’s easy to track (there’s an instant electronic record) and safe

Businesses face the same problem as consumers: there’s a direct link to your checking account, and any errors or unexpected withdrawals can cause problems. In addition, businesses need to be careful of customers reversing charges and taking back payment (for whatever reason).

Depending on the authorizations and agreements you use, you risk sending goods only to find that customers subsequently file a dispute and reverse the payment.

Finally, businesses may need to purchase software or invest time and resources into transitioning to ACH transfers. However, they’ll most likelymore than recoup those costs over the long run.

For more details on how businesses use ACH, read about ACH processing.