The Definitive Guide To ACH Payments: What Are They and How Do They Work?

Posted on May 23, 2023

Known as the dominant retail payment rail in the U.S. that can be used for payouts and collections, the growth of ACH payments is undeniable. 2022 was their tenth consecutive year when the total value of ACH payments increased by at least $1 trillion.

ACH payments are a type of electronic funds transfer made through the Automated Clearing House (ACH) network. In Canada, when you move money between bank accounts, we commonly refer to it simply as EFT (or electronic funds transfer), whereas in the U.S., it is referred to as an ACH payment.

This article covers everything you need to know, including what ACH payments are and how they work. 

What are ACH Payments?

ACH Payments Canada: ACH Vs EFT 

ACH Payment Types and Examples

What Is The Difference Between ACH Credit and ACH Debit?

ACH Debit: Pulling money

ACH Credit: Pushing money

How Do ACH Payments Work?

Making ACH Bank Payments With VoPay 

How Long Does An ACH Payment Processing Take?

Where Can I Use ACH Payments In My Business?

ACH Business Use Cases 

Top Benefits of B2B ACH Payments

VoPay ACH Payment API Technology

Automated Clearing House Network And Nacha 

The Automated Clearing House (ACH) Network is a system that electronically moves money and related payment information from one financial institution account to another. Direct debit, electronic funds transfer (EFT), and eCheck are payments that move on the ACH Network. This payment system reaches all U.S. bank and credit union accounts and ensures the sending and receiving parties can be confident that funds will be delivered on time. 

 In other words, they are responsible for the majority of all payments in America. 

Since 1974, the Automated Clearing House (ACH) Network has been run by the National Automated Clearing House Association (also known as NACHA). Nacha governs the ACH network while acting as a rule writer within the payments space. 

Nice to know: While it is not a government agency, Nacha works with various government agencies, including the Federal Reserve and state banking authorities, to ensure the integrity of electronic payment systems used by U.S. financial institutions.

What Are ACH Payments?

ACH payments are electronic bank-to-bank transactions processed through the Automated Clearing House (ACH) network. They move funds from one bank account to another electronically and without the need for a physical exchange of currency. ACH payments are used for routine fund transfers like direct deposit of paychecks, monthly debits for bills, and other financial transactions.

In 2022, the ACH network transacted 5.94 Billion B2B payments, transferring 52.53 trillion dollars. It is safe to say ACH payments are a vital component of the American economy. 

ACH Payments Canada: ACH Vs EFT 

While ACH and EFT are both electronic payment systems used for transferring funds between bank accounts, there are some key differences between the two in Canada. EFT, or Electronic Funds Transfer, is the term used in Canada to describe the process of electronically transferring funds from one bank account to another. ACH, on the other hand, is a term mainly used in the United States to describe the same process. 

The main difference between the two systems lies in the technical details of how the transactions are processed, including the format of the payment files and the communication protocols used between banks. While ACH is widely used in the U.S., EFT is the preferred method for electronic payments in Canada, with a range of options available to businesses and consumers alike. Ultimately, both systems serve the same purpose of allowing for fast, secure, and efficient electronic payments.

Payment Types and Examples 

One of the most common examples of an ACH bank transfer that most might be familiar with is a mortgage payment. Other notable examples include ACH direct deposits, payroll, online bill payments, tax refunds, and vendor payments for merchants. Since ACH transfers do not require human intervention, they have become the perfect solution for recurring payments and large transactions.

The abilities of the ACH network are wide and varied and can support almost every payment need including: 

Consumer payments

B2B payments

Direct deposit


International ACH 

Same Day ACH

What Is The Difference Between ACH Credit and ACH Debit?

ACH payment methods have become popular for B2B transactions because they offer a fast, efficient, and cost-effective way to transfer funds. Distinguishing between the two main types of ACH comes down to whether you are pushing funds into an account or pulling funds out.  

ACH push and pull payments are differentiated by who initiates the transaction. In a push payment, the account holder initiates the transaction by sending funds to another account; in a pull payment, the recipient withdraws the funds from the account.

Pulling money: ACH Debit

As the merchant, you need to pay a supplier for a recent shipment of goods. You provide your supplier with your account and bank routing number and authorize your supplier to pull the payment through an ACH debit. It allows for a seamless transaction between businesses without needing physical checks or wire transfers. 

Pushing money: ACH Credit

Imagine you are a business that sells products to various retailers. One of your retailers has a large order and wants to pay you electronically. You provide them with your account and bank routing number so that they can set up an ACH credit payment. This payment method allows your retailer to push the payment directly into your account, ensuring that you receive the funds quickly and securely.

With ACH credit, the retailer can easily send payment to you without the need for physical checks or wire transfers. By utilizing ACH credit, you can streamline your payment process and ensure that you receive timely payment for your goods and services.

How Do ACH Payments Work?

To understand the behind-the-scenes of the Automated Clearing House (ACH) network payment processing, it helps to know the key players involved. 

The NACHA is the regulatory body governing ACH transactions. An ODFI is a financial institution from which an ACH transaction starts or originates, while an RDFI is an institution that receives an ACH transaction.

For example, in business-to-business ach transactions, the bank that holds an ISV company's merchant account (the ISV's payment gateway's bank) would be the originator/debtor financial institution (ODFI), while the customer's bank that receives payments from this ISV company would be the receiver/creditor financial institution (RCFI). A customer authorizes their business to debit their bank account on their behalf for single or recurring transactions.

Stepping Out The ACH Payment Process

  1. The recipient provides their banking information to the vendor via a paper check or an ACH authorization form. 
  2. The vendor then provides the recipient's banking information to their bank
  3. The vendor's bank sends the payment information to the ACH network
  4. The ACH network routes the payment to the recipient's bank
  5. Recipient's bank receives the payment: Once the recipient's bank receives the payment, the funds are deposited into the recipient's account.
  6. The vendor's bank account is debited for the amount of the payment.
  7. The recipient's account is credited for the amount of the payment.

Payment is complete: The payment is complete, and both parties have access to the funds.

The steps outlined above are common practices for ACH payment processing. It is typical for banks to use "batch processing" and process an entire day's worth of requests at once. This can mean a lengthier time to clear ( sometimes up to 5 days. However, with the introduction of payment technology and a burgeoning Fintech-as-a-Service space, the current process known for its labour-intensive processes gets a facelift with services such as VoPay. We offer multiple ACH payment solutions with a far simpler user experience. Plus, same-day processing makes it accessible and convenient to businesses of all sizes. Let's take a look at how these payments work and how companies use them.

Making ACH Bank Payments With VoPay 

Enhance today's standard payment workflow with advanced ACH processing. 

Third-party processors like VoPay make connecting to the ACH Network and facilitating ACH transactions easy. We provide API endpoints that allow businesses to connect directly from their current platform. VoPay's Fintech-as-a-Service technology will enable organizations to streamline operations for more efficient cash flow management.  

VoPay's ACH payment service links businesses to the North American banking system, enabling them to accept, send, and bulk transfer payments online. VoPay processes standard and same-day ACH debit and credit transactions in compliance with procedures and standards set by NACHA.

To set up an ACH payment with a customer:

1. Create a VoPay Account

2. Collect the customer's bank account information using VoPay's simple iFrame experience that can be sent by email or embedded into an existing payment flow

3. Bank account information is tokenized for future use 

4. Set up single collections or recurring collections once you have successfully captured the bank account information 

5. Transaction updates can be monitored in the VoPay portal. Monthly transaction statements are accessible for easy reconciliation.

Set up one-time or recurring ACH payments to:

• Send payments directly to a vendor or supplier directly to their bank account

• Collect payments directly from a client with rapid availability of funds

How Long Does ACH Payment Processing Take?

While the ACH Network processing time is getting faster and easier with every innovation, it can still take up to 3-5 business days. 

VoPay's Intelligent ACH payment iQ11™ processing delivers faster results. 

Once an ACH transaction is initiated, it will follow the following timeline:

• Collecting payment: T + 1 business day for funds to arrive ( additional hold times may be added based on risk measures)

• Sending payment: same day or next day based on ACH service type used (same day ACH and standard ACH are both offered)

Where Can I Use ACH Payments In My Business?

Most American businesses are familiar with ACH or some of its more common names—Direct Deposit, Direct Payment, direct debit, or an electronic cheque (eCheck)—having most likely come across it; however, may not have considered it a suitable payment option until now. 

Millions of North American companies have already begun to reap the benefits of ACH payment processing. Be it paying supplier payments online, collecting mortgage repayments or other recurring payments that can be automatically withdrawn throughout the month.

Here are a few more examples of ACH debit and credit use cases

Insurance Payouts

Supplier Payments

Mortgage repayments

Monthly Gym Subscription

Rental Income

Loan Issuance


Gig Economy payments

ACH Payments Business Use Cases  

ACH payments have become a popular electronic payment method among organizations of all sizes thanks to their convenience, cost-effectiveness, and security. 

They are particularly beneficial for high-volume transactions and monthly recurring payments. 

Service-based businesses, like freelancers or consultants, find ACH payments a convenient and secure way for clients to pay without the hassle of paper checks or credit card fees. 

Lenders and loan management solutions rely on ACH payments to collect loan payments from borrowers, reducing the risk of missed or late payments while automating the payment process. 

The property management industry benefits from ACH payments, which offer tenants a convenient way to pay rent while reducing the risk of bounced checks or late payments. 

Subscription-based offerings, such as SaaS or membership-based organizations, find ACH payments a convenient and reliable way to collect recurring payments from customers, ensuring timely payments and reducing payment processing errors.

Top Benefits of B2B ACH Payments

The ways in which ACH payments are being used in today's industries are wide and varied, operating as an effective tool for companies of all types to streamline their payment processes and improve cash flow management.

Enterprises can expect the business benefits of ACH payments to have far-reaching effects throughout the entire organization.  

. Faster processing times

. A fraction of the processing costs

. A reduction in NSFs

. Stable cash flow

. A significant decrease in operational FTE

VoPay ACH Payment API Technology 

When choosing an ACH payment gateway processor for your business, it is important to understand that VoPay's entire focus is on ACH and EFT payments. We understand these payments inside out; it is our mission to bring ACH payments into the modern world by eliminating painful manual processing and enabling enterprises to have a safe and easy way to transact with their clients. 

We help large businesses and enterprises scale their payment operations through a single API integration, offering two types of ACH payment processing options: standard processing (3 days) or our intelligent iQ11 ACH same-day processing. Learn more about processing times and transaction statuses on our ACH docs page. 

Want to know more about VoPay and ACH payment? Schedule a demo of our ACH Payments platform today!

Developers: Need a single, advanced API for ACH Payment? Try our Sandbox Today! 

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