By Justin Pritchard. Banking/Loans Expert
Justin Pritchard helps consumers navigate the world of banking.
In banking, ACH stands for Automated Clearing House, which is a network used for electronic payments and money transfers. It is a way to move money without writing checks, using wire transfers, credit card networks, or (of course) cash.
Examples of ACH Transactions
- Automatic payment of recurring bills such as energy and mortgage bills (you sign up for ACH payments when you give them a voided check)
- Payments from businesses to vendors and suppliers
- Moving money from your brick-and-mortar bank to your online bank
As with any technology, using ACH means embracing the pros and cons. Let’s review those below.
What does ACH do for Consumers?
If you’re a consumer, you may enjoy:
- Getting paid by your employer quickly, safely, and reliably – no need to get your paycheck to the bank
- Automating your payments so you never forget or pay late
- Making purchases online without using a check or credit card – you can be done with a transaction quickly
- Minimizing the number of pieces of paper floating around with your bank account information
The main drawback for consumers is that setting up ACH payments means businesses have direct
access to your checking account. They’ll take the money to pay your bills whether you want them to or not. If you’re short on funds, you might prefer to pick and choose who you pay so you can pay the most important bills first.
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For more details on how consumers use ACH, read about ACH debit .
What does ACH do for Businesses?
- If you run a business, you’ll benefit from:
- A low-cost, non-labor intensive way to transfer money
- Paying employees without the need to print checks or pay postage
- Getting paid by customers easily, quickly, and regularly – no more cash-flow crunches dependent on when you can get to the bank
- Processing fees that are lower than credit card fees
- Getting paid by vendors – or making payments to suppliers – in a way that’s easy to track (there’s an instant electronic record) and safe
Businesses face the same problem as consumers: there’s a direct link to your checking account, and any errors or unexpected withdrawals can cause problems. In addition, businesses need to be careful of customers reversing charges and taking back payment (for whatever reason). Depending on the authorizations and agreements you use, you risk sending goods only to find that customers subsequently file a dispute and reverse the payment.