ACH Transaction or Automated Clearing House is a type of electronic payment system, in which transactions between financial institutions and participating parties are transferred electronically. ACH use the same process for credit/debit card payments and direct deposits so the money is automatically sent out and credited to your account without having to send a physical check in the mail.
ACH Transaction is also known as e-check, direct debit or electronic check. It allows consumers and businesses to initiate one or more ACH transfers to electronically move money from one bank account to another.
The system of ACH works by debiting prearranged payments from the users’ bank account and crediting them to the merchant’s bank account. These transfers are done through the use of Electronic Data Interchange (EDI) files. EDI is a set of rules or data communication between computers that allows them to share information with each other without human intervention.
ACH service is generally used for recurring billing – for example, utility bills, magazine subscriptions or mortgage payments.
The ACH system of transferring money is open to everyone and costs nothing to use. However, there are some charges involved when processing the transfer like the following:
Accordingly, it is important to find out what each of these charges are before you decide on sending the money through the ACH system.
As soon as you initiate an ACH transaction, it is processed immediately. However, the process of crediting the recipient’s account may take one to three business days depending on which bank he/she uses. This amount of time also varies if there are any problems with the transaction.
The amount that can be transferred through ACH differs from one financial institution to another, but is usually $25,000 per day and $50,000 – $100,000 per month. There are also different limits for each type of transfer: recurring payments or “pre-authorized debits” have lower limits than “electronic check conversion transactions.”
The ACH network is secure because it receives and sends messages by encrypted files. Also, each transaction is controlled by the same federal law that regulates the credit card system – The Electronic Fund Transfer Act (EFTA). EFTA prohibits any individual or organisation from gaining unauthorised access to the ACH system.
There is usually a time frame of about two business days for an ACH transaction to be reversed or cancelled by the consumer, which means it will take around three days before the money arrives back in your account. It is important to know that only some ACH transactions are reversible.