What is an ACH Transfer? The Basics

n ACH transfer is an electronic funds transfer between banks that allows money to be pulled from one account to another through the Automated Clearing House network (ACH). According to Nerd Wallet, the ACH network handles more than 26 billion payments totaling over $61 trillion per year. In a society dominated by technology, it makes sense that electronic payments are becoming the most common and efficient method to exchange currency amongst entrepreneurs and small businesses – they also tend to be faster to clear and more reliable than paper checks. 

You can use ACH transfers for countless types of payments, whether for business or personal expenses. These transfers range widely, from external funds transfers to person-to-person payments. Other common transactions include bill payments and direct deposits from employers and government benefit programs. 

ACH Transfers: The Basics

What are the two different types of ACH transfers?

There are two different types of ACH transactions: ACH debit transactions and ACH credit transactions.

• ACH debit transactions. Also referred to as “pull transactions,” these involve money being pulled from your account at another financial institution, or removed from your account. An example of this includes an auto-payment of rent taken from your account each month. 
• ACH credit transactions. Also referred to as “push transactions,” these involve pushing or sending money to different financial institutions' accounts. An example of this includes your direct payments to employees or receiving funds from your customers.

What is the difference between an ACH transfer and a wire transfer? 

A wire transfer is another method of moving money quickly between people or businesses without physically exchanging cash. Wire transfers usually process within minutes or hours after payment instruction is approved by the sending bank, as opposed to the multi-day wait for a Standard ACH transfer. The sender provides the instructions for the transfer with the recipient's credentials, including their name, bank, account number, dollar amount, and potentially other information. Overall, wire transfers are most conducive for large sum cash transfers and time-sensitive matters because of the expense associated with them.

Ultimately, ACH transfers can take longer to process, but payments are cheaper than wire transfers. On the other hand, wire transfers tend to be quicker but cost more. Learn more about ACH versus wire transfers. 

How long do ACH payments take? 

Rules from the National Automated Clearing House Association, Nacha (the organization that oversees the ACH network) govern payment timelines. A network operator processes ACH transfers in batches only seven times a day. In specified cases, requests for same-day ACH payments can be processed and delivered within hours or in one to two business days. Same-day ACH payments have a deadline of 4:45 pm Eastern Standard Time each day, regardless of one’s time zone.

Most banks enforce generous precautions to prevent scams, causing potential delays to transfer completion. Additionally, ACH transactions can be canceled or returned if insufficient funds are in the sending bank account. Learn more about how long ACH transfers take. 

Novo Express ACH: Speed up your ACH Transfer Time

Novo is a business banking platform built with the needs of small businesses in mind, from sole proprietors to LLCs to corporations. Standard ACH transfers can be sent to and from a Novo business checking account, completely fee-free.

If you need to free up your cash flow and reduce waiting time further, Novo offers Express ACH, which significantly reduces the usual waiting period per transfer. While typical ACH transfers take between 1 and 3 days to process, Novo Express ACH enables you to initiate same-day or next-day ACH transfers for a nominal fee.

Novo Express ACH is part of a suite of free features and integrations we offer designed to help you move money faster, including Novo Boost, our Wise integration for international wire transfers, Novo Invoices, and the Novo Virtual Card, which is ready to activate and use as soon as you open your business checking account.

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How do small business owners accept ACH Payments? 

Anyone making bill payments, especially small business owners making and receiving such payments, can utilize ACH as a beneficial payment method. Whether you accept payment as a business owner or need to pay vendors, ACH transfers are essential in running any business. Accepting ACH payments as a business owner might be an excellent fit for your company if you provide the following types of services: 

• Subscriptions and memberships: Accepting ACH payments for subscriptions or membership dues can keep your processing fees low and help you avoid losing customers when their credit cards expire.
• Rent-based services: You can avoid issues with late payments or lost cash or checks by collecting rent through scheduled ACH payments direct from tenants’ bank accounts.
• Services and invoices: ACH payments can be more convenient than mailed checks. You can also accept payments that might be too high for a customer’s credit limit if you send high-dollar invoices for bulk orders or more expensive services like construction.

How much do ACH Transfers Cost?

While there’s usually no fee to receive an ACH transfer, your bank or payment provider sets your price for ACH payments you make. The fees are typically lower than credit card processing fees. For example, Square charges 2.9% plus 30 cents for online credit card payments, whereas they charge only 1% with a $1 per-transaction minimum fee for ACH payments. Similarly, Stripe charges 2.9% plus 30 cents for online credit card payments but 0.8% for ACH payments, with a maximum ACH per-transaction charge of $5. Person-to-person payments that you initiate through your bank or third-party apps, such as PayPal, can also cost a small fee, depending on the platform and payment method.

Send unlimited, free ACH transfers with Novo. If you have a Novo business checking account, you can send and receive ACH transfers completely fee-free.

ACH Transfers and Third-Party Payment Apps

It’s not uncommon for many small business owners to use third-party payment services to send or receive payments through platforms such as PayPal, Zelle, or Venmo through the ACH network. All of these platforms allow users to send and receive money electronically. 

Venmo works more similarly to PayPal, functioning as a digital wallet. You can collect money in your Venmo account and then transfer it to other users or transfer it to your personal checking account, although there are some transaction fees if using a debit card or credit card. 

 As a business owner, accepting ACH payments comes with some benefits: 

• Lower fees. Payment providers generally charge significantly lower prices (or no fee at all) for ACH payments than credit card transactions or wire transfers.
• Reach customers without credit cards. ACH payments could be an option for anyone with a bank account who can’t or won’t get a credit card. According to the Federal Reserve, about 1 in 6 U.S. adults doesn’t have a credit card, but only 1 in 20 doesn’t have a bank account.
• No expiration dates. Customers’ recurring credit card payments can be interrupted if the card expires, but recurring ACH payments can keep going as long as the customer still has the same bank account.

The Takeaway

ACH transfers are an easy and efficient method of both paying and receiving money for your small business. While transfer times can vary depending on Standard versus Express ACH, they are an efficient and trusted method of sending and receiving money.

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This page is for informational purposes only and is not intended to be relied upon as legal, financial, or accounting advice. Please consult your own professional if you have any questions.