ACH Debit Transactions | Everything There Is to Know

Dec 19, 2018

For a quicker, safer, more efficient way to electronically move funds among banks and financial institutions across the United States, merchants must consider accepting ACH debit transactions.

Understanding ACH

ACH debit and credit transactions occur on the Automated Clearing House (ACH) network, which under the oversight of NACHA, connects more than 25,000 banks and other financial institutions, allowing for to be electronically collected across the country.

Known as a direct payment, ACH debit often is used to pay recurring bills, such as insurance or a utility bill. This type of payment is a win-win for businesses and customers. Paying this way ensure bills get paid on time and businesses like it because it makes business operations more efficient and saves money on the processing of paper checks.

The Anatomy of ACH Debit

During an ACH debit transaction, a customer or bill payer, for example, authorizes his/her bank, which is known as the Originating Financial Depository Institution (ODFI), to withdrawal funds from his/her account to the person owed, such as an insurance company.

From there, the insurance company, which would be referred to as the Receiving Financial Depository Institution (RDFI) uses the bill payer’s banking routing and account numbers to send a request through a clearinghouse, such as the Federal Reserve, to contact the ODFI and transfer the funds. When a customer agrees to recurring billing, the ODFI already has the authorization to transfer the funds, whenever they are due.

ACH Debit Transactions vs. Other Payment Methods

Though similar, ACH debit and ACH credit transactions do not work exactly the same. Instead of authorizing the recipient to withdraw funds for a payment, the originator initiates the payment on his/her own. Common ACH credit transaction uses are on-time bill payments and person-to-person payments.

There also are subtle differences between ACH debit transactions and debit card transactions. Debit card transactions, like ACH debits, withdraw funds immediately from the payer’s account and transfer them to the payee. However, instead of the payee’s bank routing and account number, debit card transactions require a signature or a unique PIN for payment authorization.

Also, instead of relying on the ACH, debit card transactions depend on connections with the card networks and payment processors, which handle communications with banks. Since more entities are involved in accepting debit card transactions, they are more expensive than ACH debits. Card networks and payment processors charge interchange and other fees, which drive up the overall costs to merchants. It is free to process ACH debit transactions.

Same Day ACH debit

Since more merchants and customers are taking advantage of ACH debit, NACHA moved to make the process faster by phasing in same day processing. During the first phase, which began in September 2016, ACH credit transactions were cleared the same day they were initiated. During the second phase, which began in September 2017, NACHA focused on making payments faster for ACH debit transactions.

After noting that nearly 41 million same day ACH transactions have flowed through the ACH Network. NACHA decided in the fall of 2018, to expand its capabilities even further, with these new rules:

  • Effective Sept. 20, 2019, fund availability for certain Same Day ACH and next-day ACH credits will be faster. For example, funds from same day ACH credits processed in the existing, first processing window will be made available by 1:30 p.m. ET.
  • Starting on Sept. 18, 2020, the ACH processing window will be extended by two hours each business day for same day ACH transactions.
  • Beginning March 20, 2020, NACHA will allow the per-transaction dollar limit to balloon from $25,000 to $100,000.

In Conclusion

ACH debit transactions provide safe, secure, almost real-time payments for financial institutions and customers.

eMerchantBroker.com (EMB) works with high-risk businesses, as well as businesses of all sizes and credit histories to find payment solutions that work best for them.

It offers a simple online application process, and most applicants get approved quickly. Why not take advantage of giving your customers quicker, safer, and efficient transaction processing? Start your application to begin the process.

Let us help you get a high risk merchant account today!

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