How long does an ACH payment take?

What do auto-pay, direct deposit and sending your friend $20 through an app all have in common? They are all examples of ACH transfers. The reality of tapping a few buttons on a computer or mobile device and transferring money almost instantaneously is relatively new, but the infrastructure used to complete these types of transactions actually dates back to the 1970s. Much faster than traditional payments like checks, ACH transfers are vital to you as an entrepreneur in the digital age as they allow you to quickly send and receive payments securely and cost-effectively. 

What’s an ACH transfer?

ACH stands for automated clearing house, which is a network that processes transactions from participating financial institutions. There are over 10,000 such institutions, and millions of transactions are completed daily through complex automated systems. The ACH network is overseen by NACHA, the National Automated Clearing House Association. 

The ACH network coordinates transfers several times per day, excluding weekends and holidays. At these specific times, millions of transfer requests are batched together and processed simultaneously by financial institutions. This process is automated, and it usually takes a few days for the banks that originated and received the requests to verify that the correct account and payment information has been provided. Once this step is complete, the funds are transferred to and from the appropriate parties.

Here’s an example of the ACH transfer circle of life that might look familiar to you as a small business owner: First, you send a customer an invoice after completing a project. The customer then initiates a funds transfer from their bank account to yours. Later that month, one of your suppliers automatically withdraws funds from your account as a recurring bill payment. 

How long does an ACH transfer take?

Generally, most ACH transfers tend to only take up to three business days to complete. This timeline accounts for one to two days for the ACH network to process the request and another day for the funds to actually post to the receiver’s bank account. There are two types of ACH transfers: debit and credit. We’ll get more into the differences between the two a little later on, but for now, this is how long each one usually takes.

ACH debit transfers: Required to be processed the next business day.

ACH credit transfers: Typically one to two business days. For an additional fee, some financial institutions process same-day ACH credit transfers. 

For ACH debit transfers, the time in between the payment being initiated and the money posting to your bank account is known as the settlement period. If you check your account before the funds have settled, you’ll likely see the deposit listed as pending. 

Of course, payment might be delayed if the ACH network returns an error code when attempting to process the transaction. The types of possible errors can range from insufficient funds, incorrect routing number, or invalid account. Even so, ACH transfers are remarkably reliable, and errors can usually be corrected fairly quickly to get payments back on track.

ACH transfer costs

ACH transfers are not only fast and convenient, but they’re usually free, too. However, sometimes the old adage that it takes money to make money applies to ACH transfers. Banking institutions usually charge a fee of a few dollars for same-day ACH transfers. However, we might know of a way to avoid these charges, but more on that later…. 

ACH Debit

To understand an ACH debit, think of the money being “pulled” from the sender’s account into the receiver’s account at the receiver’s request. In the ACH transfer example in the beginning, this is what the supplier does when it automatically withdraws payment from your account. A key function of ACH debit transfers is the ability to pre-schedule and pre-authorize payment. 

ACH Credit

In contrast, an ACH credit transfer is when money is “pushed” from the sender’s account into the receiver’s account at the sender’s request. Your customer in the example pushed money to you after receiving the invoice for payment. ACH credit transfers can be compared to the concept of a digital check. 

ACH transfer vs. wire transfer

Both ACH transfers and wire transfers complete the mission of moving money between accounts, but the primary difference between them is how the transactions are processed. ACH transfers are completed through automated systems with minimum human involvement, while wire transfers are a manual process that involves a financial services professional facilitating the transaction.

ACH transfers make sense for recurring payments of relatively small dollar amounts. Wire transfers are usually the optimal way to send large, lump sum payments that might exceed ACH transfer limits, such as real estate transactions. 

As previously noted, ACH transfers typically take a few business days to come through. However, sometimes it’s your money and you need it now, so an instantaneous wire transfer might be the fastest way to get paid.

Some, but not all banking institutions offer international ACH transfers. This could complicate matters for you if you have customers abroad. Wire transfers, on the other hand, can be used for overseas transactions, albeit with fees ranging between $30 and $50. 

All things considered, ACH transfers take the W for overall convenience. They are much less expensive than wire transfers, only take a few days to complete and can be initiated in just a few clicks.

What’s the difference between an ACH transfer and an EFT or bank transfer?

EFT, which is the acronym for Electronic Funds Transfer,  is often used interchangeably with ACH transfer. EFT is the umbrella term for all types of digital payments, which includes ACH transfers. In addition, many people refer to ACH transfers as bank transfers, and they actually are one and the same. Simply put, ACH transfers are a type of EFT and a bank transfer is another name for an ACH transfer. 

Benefits of an ACH transfer

From safe and secure to fast and accurate, there are numerous advantages to using ACH transfers. Here are just a few of the ways ACH transfers can streamline your small business operations. 

Safety

The ACH network is tightly regulated by the federal government to ensure data protection and privacy. All account information is kept confidential and transactions can be reversed in cases of fraud or an unauthorized payment. 

Convenience
If you cringe at the thought of having to run to the bank to deposit a check or coordinate an in-person meeting to pick up cash, then you’ll love ACH transfers. ACH transfers can usually be completed online or over the phone and many financial institutions offer same-day transfers for a small fee.

Cost-effective

Most ACH transfers are free, but other times, you might have to pay up to a few dollars at most to do an ACH transfer. This is negligible compared to the fees associated with wire transfers and other types of EFTs.