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ACH credit refers to the process of depositing, or “pushing,” funds digitally into a bank account using ACH, an electronic payment processing network. In this way, ACH credit functions like a digital check sent from one party to another, minus the check.
ACH credit is an easy-to-use and inexpensive method for sending digital payments. It’s no wonder so many businesses and organizations (including the US government) have adopted ACH credit (or “direct deposit”) to push funds—from social security to payroll, ACH credits are commonplace in our daily lives. Compared to checks or cash, especially for payments issued at scale, ACH offers greater convenience, security, and speed. An ACH credit can be issued, processed, and reconciled within 3-5 business days (unless Same Day ACH is used).
How does an ACH credit work?
Payroll offers a perfect example of how ACH credit works. Let’s say your employer, AmazingJob, uses ACH to issue bi-monthly paychecks to employees (aka direct deposit). Here’s how ACH credit works in this case:
- To begin, AmazingJob will confirm your bank account. HR might use a microdeposit, a service like Plaid, or if AmazingJob runs payroll with software like Gusto or Rippling, this platform will verify your bank account.
- Twice monthly, AmazingJob will issue payment using ACH files. These files will include your name, bank account and routing numbers, and the amount of your paycheck after deductions. AmazingJob sends the ACH credit files to their partner bank, the Originating Depository Financial Institution (or ODFI)—this bank originates the payment.
- Then, the ODFI will compile and batch process the ACH files received that day. Once this is completed, the files are sent to one of two clearinghouses—the Federal Reserve or EPN (the Electronic Payments Network).
- The next business day, the clearinghouse will sort ACH transactions and submit them to the right bank. At this point, your bank will get the ACH credit request from AmazingJob’s bank. Your bank, in this case, is the Receiving Depository Financial Institution, or RDFI, since they received the ACH credit request from the ODFI.
- When it receives the ACH files, your bank will deposit your paycheck, placing the funds in a “Settlement Account.” Inside your account, these funds will likely appear as “Pending.”
- The payment will settle once the ACH credit has been cleared by the clearinghouse. At this point, you will have full access to money from your AmazingJob paycheck.
For more on the meaning of ACH credit, download this free eBook about all things ACH.
What is the fee for an ACH credit?
The cost for ACH processing (including ACH credits and debits) is generally $0.20 - $1.50 per payment. Compared to payments sent via credit card which can trigger interchange and card processing fees between 1.5% to 3.5%, ACH credit can offer big savings. If you’re looking to avoid credit cards and explore other payment rails, you can find a fee comparison here.
What is the difference between an ACH credit and an ACH debit?
The difference between an ACH credit and an ACH debit is based on the direction money moves. An ACH credit deposits (or pushes) funds into a bank account. An ACH debit withdraws (or pulls) funds from an account.
Understanding the meaning of ACH credit (vs. ACH debit) can be initially confusing for consumers who use credit and debit cards for an identical purpose—to make payments. The best way to remember the difference is that, in each case, funds flow in opposing directions.
To learn more about ACH credit and the ACH network, check out the following resources:
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ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks in the United States.
ACH APIs enable companies with high transaction volumes to write software that automates payments over the ACH network.
An ACH credit refers to the process of electronically depositing, or “pushing,” funds into a bank account using ACH.
In an ACH debit, funds are electronically withdrawn, or “pulled,” from a bank account using ACH.
A Notification of Change (NOC) is used to notify the sender of an ACH payment to correct or change information related to a customer’s bank account.
A return is a credit or debit entry initiated by the Receiving Depository Financial Institution (RDFI) that returns a previously originated payment to the Originating Depository Financial Institution (ODFI).
ACH return codes identify the reason an ACH payment was returned by the recipient's bank. They make it easier to spot and resolve payment failures.
An ACH reversal refers to an erroneous ACH payment that a payment originator requests to take back, or reverse.
Credits and debits are two kinds of ACH transactions. Whereas a credit involves depositing, or “pushing,” funds into a bank account, for a debit, funds are withdrawn, or “pulled,” from an account.
FedACH is the automated clearing house (ACH) service of the Federal Reserve Banks.
Part of the FedACH system, FedGlobal ACH offers low-cost and efficient cross-border ACH payments.
The two kinds of financial institutions in the ACH network are ODFIs (Originating Depository Financial Institution) and RDFIs (Receiving Depository Financial Institutions).
A Standard Entry Class or SEC code is a three letter code that describes how a payment was authorized by the consumer or business receiving an ACH transaction.
US companies moving money internationally will likely weigh the pros and cons of SWIFT vs. Global ACH when it comes to attributes like speed and cost.
Payment rails are the underlying systems and networks that facilitate the movement of funds between parties in financial transactions.
ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks and financial institutions in the United States.
An electronic funds transfer (EFT), also known as a direct deposit, is the digital transfer of money between bank accounts. As digital transfers, they reduce the need for manual input and paper documents.
Global ACH can help companies move money from US-domiciled accounts across borders using local rails. Learn how and when to use this payment rail.
A Request for Payment (RFP) is an ACH Network message that can be used by businesses to send electronic invoices to their customers.
Same-Day ACH is an improvement to the ACH network that allows the processing of credit, debit, and return transactions several times a day.
A pre note or prenotification is a zero dollar payment to validate the account and routing details of a bank account before debiting or crediting it.
An International ACH Transfer—also known as Global ACH—is an ACH payment made cross-border from a US-domiciled account.