How to Do ACH Payments: Sending and Receiving Money

Automated Clearing House (ACH) payments are a common method for electronic financial transactions. The ACH Network facilitates electronic fund transfers directly between bank accounts, offering a reliable alternative to paper checks, credit cards, or wire transfers. It underpins many financial activities, such as direct deposit of paychecks and automatic bill payments. Administered by Nacha (National Automated Clearing House Association), the ACH Network ensures secure and efficient money movement across the United States. Billions of transactions flow through this network annually, highlighting its widespread use for individuals and businesses.

Information Required for ACH Transactions

Initiating or receiving an ACH payment requires specific bank account details to ensure funds are routed correctly. These include the bank account number, the bank routing number, the account type, and the full legal name of the account holder. This data identifies both the origin and destination of funds within the ACH Network.

The bank routing number, a nine-digit code, identifies the financial institution. It is typically found at the bottom of a paper check or can be located through online banking, on bank statements, or by contacting the bank. This ensures payments are directed to the correct bank or credit union.

The bank account number, found after the routing number on a check, identifies an individual account at that financial institution. It is unique to each account and ensures funds are deposited into or debited from the correct account. Specifying the account type (checking or savings) is necessary for proper transaction processing. Providing the full legal name of the account holder confirms the identity of the party involved.

Making ACH Payments

Sending an ACH payment is typically initiated through platforms connected to the banking system. Individuals often use their bank’s online banking portal for bill pay or external transfers, while businesses may use third-party payment platforms or payroll services.

Through online banking, users navigate to a “Transfers” or “Payments” section and select an option like “External Transfers” or “Send Payment.” The system prompts for the recipient’s banking details (routing number, account number, and account type). After entering the amount and reviewing details, the payment is authorized and submitted.

Another method involves authorizing a merchant or service provider to directly debit an account, common for recurring payments like utility bills or loan installments. The payer provides their bank account and routing numbers, granting permission for future debits. The organization then initiates the “pull” of funds on scheduled dates, simplifying regular payments. Careful entry of account details is crucial to ensure the payment reaches the intended recipient without delay or error.

Receiving ACH Payments

To receive ACH payments, you provide your bank account details to the payer. This is common for incoming funds like employment earnings, client payments, or government benefits. You share your bank’s routing number, account number, and account type with the sender.

For individuals, direct deposit for payroll is a primary example. Employers typically provide a direct deposit authorization form, requiring the employee to fill in their bank’s routing number, account number, and legal name. Some employers may request a voided check, which displays both numbers and simplifies verification. Once submitted, the employer initiates an ACH credit to deposit earnings into the employee’s account on payday.

Businesses or self-employed individuals also provide their banking information to receive payments from clients or customers. This can be done by including bank details on invoices or through secure payment portals. For instance, a client might input the business’s routing and account numbers into their online banking system to send a payment. In these scenarios, the recipient provides banking details, and the payer initiates the ACH transaction to send funds into the recipient’s account.

Understanding ACH Payment Processing

After initiation, an ACH payment enters a structured processing cycle managed by the ACH Network. The network acts as a central clearing facility, collecting and sorting electronic transactions between financial institutions. It operates on a batch processing system, collecting transactions throughout the day for settlement at specific intervals.

The process involves the Originating Depository Financial Institution (ODFI), the sender’s bank, and the Receiving Depository Financial Institution (RDFI), the recipient’s bank. The ODFI collects payment requests and sends them in batches to an ACH Operator (either the Federal Reserve or The Clearing House). The ACH Operator sorts and routes these batches to the appropriate RDFIs.

Funds typically become available in the recipient’s account within one to three business days, though same-day ACH options are available for a fee. Processing does not occur on weekends or federal holidays; payments initiated late in the week or on a holiday begin processing on the next business day. Users can monitor payment status through online banking transaction history, where the transfer shows as a debit from the sender’s account and a credit to the recipient’s account.