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What Are ACH Payments and How Do They Work?

ACH Payments

An ACH payment is a bank term that stands for the Automated Clearing House. ACH payments are electronic transfer systems that move money between bank accounts in the U.S. A few examples of ACH payments include direct deposits, payroll, online bill payments, tax refunds, and vendor payments for merchants and small businesses. 

Automated Clearing House Network

Since 1974, the Automated Clearing House (ACH) Network has been run by the National Automated Clearing House Association (also known as NACHA). In other words, they are responsible for the majority of all payments in America. 

The ACH Network that is responsible for the payments is one of the biggest payment networks in the U.S. In 2018, nearly 23 billion transactions were processed valued at more than $51 trillion. According to one source, the number of transactions in 2017 was equal to approximately 66 transactions and more than $140,000 for every living American. The ACH payment network also represents more than 10,000 financial institutions, not to mention consumers and businesses. 

How does ACH payment processing work

ACH payments are transfers of money between two bank accounts and can be broken up into ACH debit and ACH credit. Payments are either transferred (or pushed) from your account or received (or pulled) by another. 

ACH Debit: Pulling money

Pretend for a moment that you’re a business owner with a utility bill to pay. You had previously provided your account and bank routing number to the utility company and approved direct bill payments. The company sets up an ACH debit to pull money from your account. 

ACH Credit: Pushing money

Assuming that you are still that same owner with a utility bill, you can also initiate the payment. You can create an ACH credit to withdraw or push funds from your account to the utility company.  

How ACH payment processing works

In order to receive or send ACH payments, one has to connect their bank account and routing number to enable automatic payments online. Once that’s happened, here’s how the processing works: 

  1. Initiate transfer: Sending money triggers an initial transfer request to the central clearinghouse.
  2. Sorting: The ACH Network sorts the payment requests and sends it to a receiving bank.
  3. Processing: This bank processes the transfer to either an ACH credit or debit. If the payment is approved and was an ACH credit that “pushed” funds, the transfer is complete. 
  4. Pulling funds: If “pulling” funds, or an ACH debit, then the funds must move back through the clearinghouse before arriving in the other account. 

How long does an ACH transfer take

The ACH Network processing time is getting faster and easier with every innovation but can still take up to 3-5 business days. This is because of the multi-step process and various bank touchpoints that each transaction must go through to be completed. However, recent changes to NACHA’s operating rules will make transfers faster than ever. As of September 2020, most, if not all, ACH transfers will be completed by the same day. 

How to make ACH payments

VoPay connects directly to both ACH payments in the U.S. and EFT payments in Canada, allowing users to accept, send, and bulk transfer payments online. Our secure technology allows users to accept and manage ACH payments directly from any bank account. 

ACH payments in Canada

Digital payments in the U.S. are called ACH payments. In Canada, however, they are called EFT payments, or electronic transfer funds. The difference is that ACH payments go through the Automated Clearing House Network. For more information, read our in-depth blog post called Everything You Need to Know about EFT Banking

Learn more about VoPay and ACH payments.

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‘Tis the season to pay: Avoiding holiday debt

Holiday Debt

As Scrooge might say, ‘tis the season to pay—and for exorbitant holiday debt. As it is, consumer debt is at an all-time high exceeding $4 trillion and it’s no wonder it’s worse this holiday. Let’s take a look at the stats:

Though not surprising or anything new, 70% of adults are stressed about this year’s holidays, mostly because of money, payments, and debt. Yet, despite so much consumer debt, people are still willing to continue to charge their credit cards for holiday gifts. This is one of the most expensive ways to borrow money, however, and can lead to more debt very quickly.

Holiday debt and credit card spending

For example, according to an Experion survey on holiday spending for 2019, consumers will spend 75% more on gifts this year than last. In 2018, they planned on spending $949 for holiday gifts and this year, it’s more like $1,649. But according to Ted Rossman, from CreditCards.com, if shoppers spend $1,500 and only made their minimum payments, it would take over eight years to pay off—and the accumulated interest would be $1,217 at our current interest rates.

That is a huge price to pay in interest alone. At that point, we have to ask: is it worth it? Is there a better, more responsible way to pay for holiday gifts for our loved ones? 

Spending your hard-earned savings or succumbing to debt 

According to a recent NYTimes’ article, Merkel Landis from the Carlisle Bank of Pennsylvania came up with the idea of the Christmas Club savings account back in the 1920s. This became popular before middle-class consumers had easy access to credit cards (and the debt that often comes with them). The whole point was to save money (and perhaps even accumulate interest) leading up to Christmas shopping. What a concept: spend what you have. 

However (and to be fair), even the most debt-free savvy spenders among us have since replaced their holiday savings accounts with various types of credit cards. This could be partly due to online shopping. For example, 53% of all holiday shopping this year is expected to be done digitally. This kind of shopping really only leaves consumers with credit cards as a way to pay. 

As well, some of these credit cards earn people rewards, which could be another reason for the shift away from savings toward credit. The more they buy, the more they earn. But, as NYTimes so aptly puts it: “buying more stuff than you typically do increases your risk of credit card debt.” Consumers are thus forced to succumb to record-high-interest rates, everlasting credit card debt, and spending beyond their means. 

Save up and spend online this holiday—without the debt

Thankfully, the digitization of payments is changing all of that

Consumers (and merchants, for that matter) finally have another online payment option. VoPay, as an example, is a financial technology (fintech) company that digitizes direct payments. Consumers can once again tap into their hard-earned “Christmas Club” savings accounts to pay for their holiday shopping online. They can rid themselves of crippling credit card debt and the stress that comes with the holidays but isn’t necessary anymore. They can once again spend the money that they have—and enter 2020 debt-free with a little bit of planning and savings.

Learn more about VoPay and how digital payments work.

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