Melio explains: ACH in less than 60 seconds
Everything you need to know about ACH bank transfers and how they benefit your business.
A little bit more about ACH:
As a business owner, you’ve probably come across the term ACH–you may have heard your accountant or vendors talk about it. If you’ve wondered what it means, you’re in the right place.
ACH transfers are bank-to-bank transfers that are processed through the Automated Clearing House. Let’s say you have a plumbing business, providing your service to a wide variety of clients. You buy equipment like wrenches, pipes, cutters, heat shields, and more from one of the biggest suppliers in your area. Since the sums of money you owe add up, you don’t want to write them a check.
One of the better payment options for you is a bank transfer. How does that work? A transfer is initiated from your bank to your vendor’s bank. Rather than cash, the institutions share information about the recipient (your vendor), the recipient’s bank and account number, and the amount transferred. Your vendor’s bank receives the information from the initiating bank and deposits its own reserve funds into the correct account.
When you make an ACH payment to your vendor, the money is moved from your bank to an Automated Clearing House network instead of directly into your vendor’s account, like it would with wire transfers.
ACH bank transfers are relatively inexpensive. The charge per transaction is usually between free and a few dollars. Another major benefit is that the transaction daily limit is quite high, meaning you can pay multiple bills on the same day. What about your supplier? Depending on the service you use to initiate the transaction, they get the money anywhere between 1-5 business days.
Unlike some other types of bank transfers, ACH transfers can only be used to send or receive money inside the U.S. This means that if you are using vendors outside of the country, you probably need to find a different way to send them payments.
If you offer clients direct deposits or use third-party payment apps, such as Zelle or Venmo, you may already have ACH bank transfers set up in your business. This transaction method is common when sending or receiving money from online sources.
To make sure your business runs smoothly, be sure you use the payment method that’s best for you.
*The purpose of this page is solely to provide information and should not be considered as financial advice
**Melio does not provide legal, tax or accounting advice; you should consult a professional advisor before making any financial decisions.
