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Credit vs. Debit

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 Whereas a credit involves depositing, or “pushing,” funds into a bank account, for a debit, funds are withdrawn, or “pulled,” from an account.

The Difference Between Credit and Debit

The difference between credit vs. debit for ACH is determined by the direction money is moving. An ACH credit deposits (or pushes) funds into a bank account. In the case of an ACH debit, money is withdrawn (or pulled) from an account. Banks in these fund flows are either Originating Depository Financial Institutions (ODFIs) or Receiving Depository Financial Institutions (RDFIs)—learn the difference between ODFIs and RDFIs here.

ACH credit is commonly referred to as direct deposit and widely used for fund flows like payroll; an ACH credit functions much like a digital check (minus the check). Let’s walk through a payroll example to illustrate how a credit works using a fictional company called BestJob:

  • Once BestJob has confirmed your bank account (often via a microdeposit), BestJob will issue payment using ACH files sent to their partner bank, the ODFI.
  • The ODFI will compile and batch process the ACH files received that day and send them 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 correct banks. The employee’s bank, as the RDFI, will receive the ACH credit request from BestJob’s bank.
  • When it receives the ACH files, the employee’s bank will deposit the paycheck into a settlement account, and the funds will likely appear as “Pending,” until the payment settles.

An ACH debit runs through the same process but in reverse. ACH debit is commonly used by businesses that collect recurring payments from consumers. Let’s walk through an ACH debit example using online bill pay for a fictional utility company called WaterWay:

  • Once WaterWay has confirmed their customer’s checking account, the company will request payment by sending ACH files to their partner bank, the ODFI.
  • After the ODFI has batch processed and compiled the ACH files, these files are then sent to a clearinghouse, either the Federal Reserve or EPN (the Electronic Payments Network).
  • On the following business day, the clearinghouse will sort ACH transactions and send them to the correct bank. When the WaterWay customer’s bank (the RDFI) receives WaterWay’s ACH debit request, they will debit the customer’s account for the total bill and place the money into a settlement account.
  • At this point, the customer will be able to see that WaterWay has deducted funds from their checking account. When the ACH debit is cleared by the clearinghouse, the payment is settled.

One complexity surrounding credit vs. debit relates to which party originates the payment and which party receives it.

A table showing credit vs. debit depending on which party originated/received the payment

The table above helps to clarify the four possible scenarios.

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