Explained: What is an ACH Credit (Plus How it Works)

Whether you’re exploring payment processing options for your business, or just wondering what “ACH” means on your checking account, this is a complete guide to ACH credit transactions.  

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ACH payments are categorized into two groups; ACH credit and ACH debit. Both simplify money movement and make it easier than ever to digitally transfer funds.

However, some Americans don’t fully understand ACH transactions. Despite more than 95 percent of U.S. workers being paid by ACH credit (direct deposit), there’s still a knowledge gap as to what ACH credits actually are.

ACH credits are a powerful and convenient tool that benefit businesses and individuals. Let’s dive into the details.
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What is an ACH credit? 

An Automated Clearing House credit is a type of electronic payment made through the ACH network. This type of ACH transfer occurs any time someone instructs the ACH network to “push” money from their account to someone else’s.

For example, when an employer pushes payroll to their employees, or a government agency pushes cash payments (like tax refunds, social security, or relief funds), these are ACH credit transactions.

More examples of ACH credits include:

• Bill payments (like ACH rent payments)
• Peer-to-peer (P2P) transfers like Venmo, Paypal, or CashApp
• Loan disbursements
• Withdrawals of funds from iGaming sites

In general, ACH transactions enable money to move from one bank account to another either instantly (via RTP rails) or very quickly (under 1-3 days). ACH credits are just a version of these transactions that tell your bank to give money to a person or an organization via pay-by-bank.
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How do ACH credits work? 

On the surface, sending payment via ACH credit is much like a digital version of paper checks. You notify your bank of the person/account you want to give money to, provide the banking information, and the bank moves money from your account to theirs.

Still, the mechanical process behind the scenes is a bit more complicated. Here’s how these electronic funds transfers work:

1. ACH credits are initiated when the payer or processor gives an Originating Depository Financial Institution (ODFI) the payee’s account information (bank account number and routing number), the amount to be sent, a categorization code, and a target settlement date.
2. The payer’s bank collects this payment instruction, along with others, and submits them to the ACH network, acting like a central hub for processing these transactions.
3. The ACH network groups many transactions into batches. These batches are processed together, usually six times per day.
4. Within the ACH network, these batches are sorted and sent to the respective recipient banks. The sorting process ensures each transaction is routed correctly, based on the routing number and account information provided.
5. The payee’s bank receives the transaction from the ACH network. Before the money is added to the recipient's account, the bank checks the transaction details to ensure everything matches correctly.
6. If there are no errors or ACH return codes, the payee’s bank credits the recipient's account with the amount specified in the transaction.
7. Funds for settled transactions are then released by the Receiving Depository Financial Institution (RDFI) to the payee.
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How long do ACH credit payments take to settle?

ACH credit transfers typically take 1 to 2 business days to settle. 

The exact timing depends on several factors, including the time of day the transaction is initiated, the policies of the banks involved, and whether the transaction is being processed on a business day or over the weekend or holiday.

Transactions initiated early in the day are more likely to be included in that day's processing batches, potentially leading to a quicker settlement. However, if a transaction is started late in the day, on weekends, or close to a holiday, it might not be processed until the next business day, extending the time until settlement.

However, Real-time payments (RTPs), or “Immediate Payments”, allow individuals and businesses to send funds immediately. 

In the US, instant payments began with The National Automated Clearing House Association’s RTP system, which currently transacts more than 60 million transactions each quarter. Additionally, the Federal Reserve also launched its own real-time funds transfer product called FedNow. 
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ACH credit vs ACH debit

The primary difference between ACH credit and ACH debit transactions is the direction of the fund's movement.

While ACH credit "pushes" money to the recipient's account, ACH debit "pulls" funds from an account upon authorization.

For an ACH debit transaction to occur, the account holder must first give permission to a business or another individual to draw funds from their account. Once authorization is granted, the payee (the one receiving the money) sends a request through their bank to pull the specified amount of money from the payer's bank account.

ACH debits are commonly used for recurring ACH payments like utility bill payments, membership fees, and subscriptions, where the business initiates the transaction based on pre-agreed terms with the customer.

📖 Read next: What's the difference between ACH debit and ACH credit? 
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How much are ACH credit fees?

While they’re one of the most affordable ways to move money, ACH credits aren’t free. The payee (whoever's sending the money) will incur some sort of fee.

The ACH network charges minimal fees, typically less than a penny per transaction. Processing partners, like banks and payment processors usually facilitate ACH credit transactions, and therefore charge a fee for the service.

These fees can range from tens of cents to around $1.50 per transaction.

Still, even at the highest fee amount, ACH credits are lower than the fees for other forms of payment and types of electronic transactions, like wire transfers or credit card payments.
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What’s next for ACH credit?

ACH transactions are being revolutionized by account-to-account (A2A) payments. Paper checks are virtually gone, and even cash, debit cards, and credit cards are becoming archaic in comparison to recent fintech advancements.

Early adopters like Gen Z are already heavily leveraging new payment methods as 79% have tried a new payment method in the last year, the highest share across age demographics. 

As more companies and individuals accept ACH payments, we’ll see a world where money flows in and out of accounts seamlessly in the same-day.

We will also see significantly more development both within and alongside the ACH system. New products and processors will compete while consumers and businesses leverage advancements to improve money movement and management.

Expect to see ACH credit and debit integrated into everyday lives with help from solutions like Aeropay, a secure and seamless ACH transfer processor.