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ACH Transfers: The Must-Have Payment Type for Small Businesses


January 21, 2025


ACH billing is one of the most commonly used yet least understood forms of consumer payments today. Most small business owners have a better understanding of how ACH payments work than their customers. Still, it’s worth taking a deep dive into the advantages and disadvantages of ACH bank transfers to minimize transaction fees and grow your business long-term.

What Does ACH Stand For?

ACH stands for Automated Clearing House. It is an international network that connects financial institutions to move money quickly from bank to bank. While terms like ACH transfers and ACH payments describe the type of payment, the acronym stands for the network used to transfer money electronically, not the payment itself.

ACH transfers are more common than you might think and go by several other names, though many don’t realize these payment types also use the ACH network. Other examples of ACH payments include:

  • Automatic transfers
  • Direct deposit
  • Direct debit
  • eChecks

The Automated Clearing House network was formed in 1974 and is operated by the National Clearing House Association. The association monitors the network for fraud and illicit activity and ensures a safe and secure environment to facilitate an average of 10 million ACH payments per day. Individual institutions may cap the total amount per ACH payment (JP Morgan Chase has a $25,000 daily cap) and the number of transactions a business or individual can make in any twenty-four period.  

How Do ACH Payments Work?

Each ACH transaction requires specific details of the payer and payee accounts on either side of the transaction. Both parties need to provide their account number and routing number. As small business owners, you require employees to provide a blank check to record this information while setting up direct deposits; it’s the same process as completing an ACH transfer.

Here’s a quick look at how ACH payments work.

  1. The customer requests to make a payment.
  2. The payment processor (in this case, BuyFin) initiates an ACH payment.
  3. Records of the request are sent to an ACH operator, which is the relevant financial institution to facilitate the transfer.
  4. The files are relayed to the ACH operator of the receiving bank.
  5. The receiving bank processes the files and approves the transfer.
  6. The funds are deposited in the receiving account; in this case, the contractor or small business owner’s account.

It’s important to note that “moving” money doesn’t mean one bank is shipping cash to another. Instead, those ACH files are tallied up throughout the transaction window, and banks ask the Federal Reserve to credit or debit their accounts for the appropriate amount.

ACH Credit and ACH Debit

There are two types of ACH payments, although most consumers and businesses don’t typically make the distinction during most transactions. The type of ACH payment describes which party, the payer or payee, initiates the ACH transaction.

Here are some examples to clarify the difference between ACH credit and ACH debit.

  • ACH Credit – An ACH credit describes the pull of money from a payee’s account to another party. A recurring ACH payment to pay your electric bill is an example of an ACH credit.
  • ACH Debit – An ACH debit describes the transfer of money from the payer’s account to the payee. An employee paying their employees is an example of an ACH debit.

How Long Do ACH Payments Take?

The ACH payment time frame isn’t immediate, but it’s certainly faster than paper invoices and mailed checks. In most cases, ACH payments take between one and three business days. ACH debits usually process faster than ACH transfers, and most institutions process ACH requests six times per day. Today, most banks also offer same-day ACH processing for an additional fee. In 2022, the last year with data, same-day ACH transfers increased 15.5% year over year, while the value of same-day payments increased 86.3% to $1.7 trillion.

How Long Will an ACH Payment Be Pending?

In most cases, ACH payments will appear as pending for 1-3 business days. Credits typically process faster, often within one business day. If an ACH debit is marked as pending for more than three business days, consider contacting the vendor to confirm that payment details were processed accurately.

Read more: Why Staged Funding Matters

The Advantages of ACH Payments for Small Businesses

Making money costs money, and that’s certainly true in terms of taking customer payments. For small businesses, taking an ACH payment means they save on credit card transaction fees, but there are other advantages, too.

  • Lower processing fees. ACH transfer fees vary by institution, but the average cost is between $0.25 and $0.50. Institutions may also charge an additional flat fee per transaction (usually $0.20 to $1.50) or a percentage of the transaction, though the rate is usually capped at $5.
  • Automated reporting. Most institutions record, compile, and provide automated ACH reporting. Some offer ACH integration with accounting software, making it easy to download ACH transaction history in just a few clicks.
  • Fewer errors and fraud. Check transactions, the closest alternative to ACH payments, expose the payee’s account information to several parties. In contrast, ACH limits exposure to just the ACH operator, reducing the risk of fraud.
  • Streamlined disbursements. Batched ACH disbursements allow small businesses to receive ACH payments as soon as they are available or in regular payments to optimize cash on hand.

Disadvantages of ACH Payments

There are some disadvantages to accepting ACH payments. For small businesses, the benefits largely outweigh the costs, but it’s worth noting some of the potential issues associated with accepting and prioritizing ACH over other payment methods.

  • Rejection. ACH payments can be rejected for insufficient funds, closed accounts, or inputting incorrect account information. This can force small businesses into having to request an alternative payment method or corrected data from the customer.
  • Authorization timeline. Authorization isn’t immediate, which means businesses may only learn a transfer is declined several hours after the initial request.
  • Transaction limits. Some institutions cap the value or quantity of ACH payments per day, week, or month.
  • Fees. While ACH payment fees are less expensive than credit card fees, they can still add up.

The Importance of ACH Payment Processing for Small Businesses

ACH transfers are central to today’s fast-moving economy. Even as buy-now, pay-later payments and credit usage have increased, ACH payments are crucial to facilitating liquidity. In 2023, the ACH network moved more than $77 trillion and completed 30 billion payments. Consumers value choice, and the lower fees associated with ACH make it an attractive option for small businesses and their customers. That’s why ACH payment is a core component of our payment processing services.

Build Your Business with ACH Payment Solutions from BuyFin

BuyFin was built from the ground up to support home service companies of all sizes. We’ve designed our payment processing and consumer financing products to meet the unique needs of home service contractors operating across verticals, from electrical to HVAC.

Empower your growth with BuyFin; contact us to get started.