What are ACH Payments and Transactions, and How Does ACH Work?

What is an ACH payment?

What does ACH mean? ACH stands for automated clearing house (ACH) payments, which involve moving money from one bank account to another, without the use of credit cards, paper checks, or wire transfers. 

Banks and other financial institutions use the ACH network, which is governed by the National Automated Clearing House Association (NACHA), to process ACH transfers electronically. Additionally, the Federal Reserve processes all ACH payments on behalf of the U.S. government.

To put ACH utilization into perspective, NACHA reported a record-breaking 7.1 billion payments made in Q1 of 2021, an 11 percent increase over the same period in 2020. Even more, the value of those payments totaled more than $17 trillion.

Types of ACH transactions

While you may be unfamiliar with the ACH acronym, you most likely use electronic funds transfer in some shape or form. 

Common examples of ACH transfers include receiving a paycheck or tax refund through direct deposit, using your bank account to make recurring payments for utility bills and mortgage payments, or using platforms such as Venmo or Google Pay to split a pizza with a friend. Even the Covid-19 stimulus checks were sent in the form of ACH direct payments.

Some of the most common ACH payment transfers include:

• Consumer-to-business transactions, which occur when consumers pay for one-time and recurring bill payments via ACH bank transfers. 

• Person-to-person transactions, which include using a platform such as PayPal, Zelle, Venmo, or Google Pay to transfer funds between personal bank accounts.

• Business-to-business transactions, which provide a helpful tool for business owners who need to easily pay employees and subcontractors, or purchase materials.

How does ACH payment processing work?

The ACH payment process is fairly straightforward and requires two parties—the originator and receiver—to transfer the funds. As an HVAC, plumbing, electrical, or other service business owner, consider the following example for collecting an ACH payment from a customer.

After you complete a job or schedule recurring service, the customer initiates the transfer through their bank, which serves as the Originating Depository Financial Institution (ODFI). The request gets sent to the ACH network, which routes the request to your receiving bank, referred to as the Receiving Depository Financial Institution (RDFI).

As the business owner, you’ll see ACH payments show up on your financial statement as an ACH credit. On the other hand, if you need to pay a subcontractor or supplier, the charge will appear as an ACH debit payment.

It’s important to note that financial institutions don’t immediately process individual ACH payments in real time. Instead, they batch them together and send all payments to the ACH payments network at once, usually 1 to 3 times per day. Same-day ACH transfers are common, but you should expect a processing time of one to two business days to receive ACH funds. 

What are the benefits of ACH?

Using ACH as a payment method offers multiple benefits to both businesses and consumers, such as:

• Few to no fees: Unlike credit card payments that incur a processing fee for every financial transaction, or wire transfers that include costly transaction fees, ACH payments bypass card networks and are usually free, or sometimes require a minimum service fee to move money between separate banks. 

• Save on paper and printing costs: If you pay your staff via direct deposit, you don’t need to pay for printing and postage, or spend valuable time filling envelopes or driving to the post office.

• Streamline recurring payments: Once you establish a customer’s banking information, you can automate recurring payments for service agreements, memberships, and more. 

• Minimize paper banking and mistakes: Less paper banking reduces the chances of user error, or sensitive financial information falling into the wrong hands.

Are there any drawbacks to using ACH payments?

ACH offers a few drawbacks that may turn off certain customers, including:

• Customers need to provide their bank account number: Some customers may feel uncomfortable providing you with their banking account, routing number, and other personal payment information, which is needed to execute a successful ACH money transfer.

• Lack of protection for overdraft fees: Unlike debit card transactions that often include overdraft protections for insufficient funds, automatic ACH payments deduct the funds, even if you don’t have the money in your checking account or savings account.

ServiceTitan offers flexible payment options, including ACH

Whether you own a small business or a large enterprise, as a service business owner, you understand that customers prefer multiple options to pay for home services and repairs. ServiceTitan’s field service software offers the flexibility to seamlessly collect multiple payment types, including check, credit card, and ACH bank transfers.

When you add a new payment in ServiceTitan’s payment software, simply select “bank transfer,” and then enter the customer’s bank account information to initiate the payment. ServiceTitan also stores the customer’s payment information indefinitely, so you can automate future payments with ease. Additionally you can see all of your ACH, credit card, and check payment metrics in a single, easy-to-read dashboard.