What is an ACH Transfer?

Learn more about how ACH payments work and how they can help your small business bank efficiently.

An ACH transfer is an electronic method to transfer funds from one bank account to one or many bank accounts through a payment processing system called the Automated Clearing House.

Looking for ways to more efficiently make and receive payments for your small business? Consider ACH payments, a convenient and secure bank-to-bank transfer. ACH payments are a popular choice for businesses because they’re convenient, cost-effective, and more secure than many other forms of payment. Small businesses can easily make payments to vendors and collect payments owed by customers.

Read on to learn more about ACH payments and their potential benefits for your small business.

How Do ACH Transfers Work?

The Automated Clearing House is a descendant of bygone days when banks would exchange paper checks in a “clearing house.” Over time, this process was automated, and now the Automated Clearing House is an electronic component of the financial ecosystem. It allows businesses to make payments and collect funds from their customers.

To initiate an ACH transfer, you’ll need the appropriate bank account information for the account you want to move funds to or from, including the account number and ACH routing number. When a payment is initiated, whether it is made to an account or collected from an account, it is electronically processed with the appropriate bank.

What is an ACH number?

An ACH number is also known as a routing number; it is a 9-digit number specific to your bank that ensures the electronic deposit is routed to the correct financial institution. Each bank has a unique ACH routing number. You can find it printed on the bottom left of your checks next to your account number, which is the number associated with your specific account. You will need both numbers to complete an ACH transaction. 

What is an ACH Deposit?

While they typically don’t refer to them as ACH transfers, most consumers are familiar with ACH deposits—more commonly known as direct deposit. An ACH deposit is any time funds are deposited into a customer’s account by a business or the government, whether it’s for payroll, an expense reimbursement, or through a government benefits program.

What is an ACH Payment?

An ACH payment is a direct payment through a bank-to-bank transfer, whether it’s from a business to a consumer or from one business to another. ACH payments are a convenient and reliable way to make payments. When using ACH payments for a small business, you can also collect payments from a customer or make payments to a vendor.

What is an ACH Account and Should I Use One for My Business?

There are several benefits to using ACH payments for any business:

• Convenient: Making payments online is easier than writing and tracking checks. Receiving ACH payments from a customer can save you time processing checks, as well as a trip to the bank. You can also set up recurring ACH payments, which provides long-term benefits.
• Cost-effective: While costs vary, ACH payments are cheaper than wire transfers and costs associated with paper checks. Depending on your payment processor, you’ll pay either a fee per transaction, or a monthly fee.
• Predictable: Unlike checks, you can be confident when funds will be withdrawn from or deposited into your account. This could help you better predict your company’s cash flow. Processing times typically take 1-2 business days, so if you need to transfer money immediately, you may want to consider wire transfers. Same-day ACH payments are becoming a more common option, however there are restrictions on the payment amount as well as a cutoff time during the day.
• Secure: In addition to being easier and cheaper than checks, ACH transfers are more secure—after all, they can’t be physically stolen from a mailbox.

While only you can decide if ACH transfers make sense for your business, there are many ways that they could improve your operations. Schedule an appointment with a Santander banker to learn more about how to get started.

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