ACH payments: How they work and how they help your business

Technology has changed the ways we do business, including how we pay for goods and services. Cash has always been one of the common methods of payment, and it still is, but there's no denying that credit card transactions have transformed the financial landscape. In recent years, technology has provided entrepreneurs with a convenient, inexpensive, secure and now popular way to transact business: the ability to send and receive payments electronically.

What is an ACH payment?

ACH stands for Automated Clearing House, the financial network in the United States responsible for overseeing and managing ACH deposits. Regulated by the federal government, the network provides security and confidence in the payments while helping make the banking system fast, efficient and secure.

Chances are you're already using ACH payments, even if you're unfamiliar with the jargon. Any bill you pay electronically (instead of with a credit card) or any salary you receive via direct deposit is done using an ACH payment. Many electronic payment apps and platforms like PayPal and Venmo use the ACH network.

ACH payments differ from more traditional payment options, particularly in how they use routing numbers. They've become popular in recent years because they're fast and reliable, which helps streamline accounting for both sender and receiver. They're also cheaper in most cases. It costs less to process an ACH transfer than a credit card transaction, helping small businesses save money.

Types of ACH transfers

There are two types of ACH transfers:

• ACH debit transactions — money that's “pulled” from an account, such as a recurring bill payment that allows the company you're paying to withdraw from your account
• ACH credit transactions — money “pushed” to accounts at different banks from accounts you own

How does ACH work?

In addition to the Automated Clearing House network, two additional entities are involved in ACH payments: the Originating Depository Financial Institution (ODFI) — the financial institution initiating the transaction, and the Receiving Depository Financial Institution (RDFI) — the financial institution receiving the ACH transaction.

Here's the process for a customer to set up an automated monthly payment to your company:

1. The customer provides checking account information (routing and account number) to your company's bank and signs a recurring payment authorization, giving your company's bank (ODFI) permission to access the set amount.
2. When your customer's bill becomes due, your company's bank (again, the ODFI) sends a request to the customer's bank (the RDFI) to transfer the funds owed.
3. Those banks communicate to ensure enough funds are in your customer's bank account to process the transaction.
4. If sufficient funds are there, the transaction is processed and the money is routed to your company's bank account.

Benefits of ACH payments

ACH payments have become an attractive option for businesses of any size because:

• They have lower processing fees than other kinds of payment (other than cash payments).
• They save you time and money by eliminating the need for paper invoices, stamps, and paper checks.
• They allow customers to automate payments, letting them “set it and forget it” by signing up for recurring billing.

Drawbacks of ACH payments

While affordable and convenient, ACH payments do have limitations:

• ACH payments are processed in batches each day, meaning they may need more time to transfer between accounts (often in one to two business days, or the same business day with Same Day ACH).
• Some institutions set daily and monthly caps on how much money you can move using ACH payments. The same-day ACH per transfer maximum limit is $1 million.
• After a specific time during the business day, ACH payments won't be processed until the next business day, so there may be a delay if the transaction occurs on a weekend or holiday.
• Most banks don't allow ACH transfers to and from international bank accounts, but this might change.

Your business can expand its payment processing options by accepting ACH payments online, offering a time-saving convenience to customers and saving you money. To find out more, speak with a business banker to see whether ACH payments can help your bottom line.

Additional information including transaction limits can be viewed in “Learn more” within the Business Payment Center.

Same-day ACH payments: Your payment generally arrives by end of day, when authorized before the 2:00 PM ET cut-off. Most payments scheduled after the 2:00 PM Cut-off time will arrive the next business day by 1:00 PM ET. We review all payments before we process them, and we may require additional information which could cause some delay. If you use Chase dual control, we will begin to process your payment, once an authorized user approves it. Enrollment in ACH Payment Services is required. There is a fee of 1% of the payment amount, up to $25 per transaction for a Same-day ACH payment. Same-day ACH payment delivery is available during business days only. Final availability of the funds is subject to the recipient’s financial institution. Same-day ACH payments are subject to Nacha rules.

Standard ACH allows you to send electronic payments to your vendors and employees. Standard ACH payments must be approved by 8:00 PM ET and arrival time is dependent on your payee type; payments to business accounts (vendor payees) as early as 1 business day and payments to personal accounts (employee payees) as early as 2 business days. Standard ACH payments authorized after the cutoff time will be processed the next business day. You can cancel a Standard ACH as long as you do so before the 8:00 PM ET cutoff time. We review all payments before we process them, and we may require additional information which could cause some delay. Standard ACH payments are subject to Nacha rules.

Standard ACH, Same-day ACH and Real-time payment transactions each count toward your total daily limits for transaction amounts.

Real-time payments: Your payment generally arrives moments after you send it. We review all payments before we process them, and we may require additional information which could cause some delay. If you use Chase dual control, we will begin to process your payment, once an authorized user approves it. Enrollment in ACH Payment Services is required to activate real-time payments. There is a fee of 1% of the payment amount, up to $25 per transaction for a real-time payment. Real-time payments are unavailable from 2-6 AM ET on business days and cannot be cancelled or reversed, once processing begins. Not all payees’ banks support real-time payments. Real-time payments use The Clearing House network to process payments and are not subject to Nacha rules and are not ACH transactions.

For informational/educational purposes only: The views expressed in this article may differ from those of other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. Information has been obtained from sources believed to be reliable, but JPMorgan Chase & Co. or its affiliates and/or subsidiaries do not warrant its completeness or accuracy. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.

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