Bookkeeping 101: Is e-check the same as ACH? Yes and no!

Sometimes you can be totally wrong but also a little right. For example, if you—like many small business owners—think e-checks are the same thing as ACH bank transfers.

The reason there’s so much confusion about these two terms lies in the relationship between them. Imagine the ACH network as a river where different types of ACH transfers flow. Among these are ACH credit, ACH debit, and e-checks.

Still confused? Read on to better understand these two terms, why and when they’re used interchangeably, and most importantly, what they can mean for your business.

What’s ACH?

ACH is short for automated clearing house, which is basically a fancy way to refer to banks and other financial institutions. In simple terms, ACH is a network of institutions that enables the digital transfer of funds between accounts. It is mostly used for domestic transfers, though international transfers are also offered by some banks.

Since it’s done digitally, an ACH bank transfer is a form of electronic funds transfer (EFT).

According to Nacha, the organization that governs it and ensures compliance and security, the ACH network moved $19.2 trillion in the third quarter of 2022. That’s almost as much as China’s gross domestic product (GDP) for the whole year (in other words, it’s a lot).

There are two main types of ACH transfers:

• ACH credit: Works like any standard bank transfer in which funds are sent between accounts at the payor’s request.
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• ACH debit: This type of transaction, also known as ACH withdrawal or direct payment, is initiated by the recipient of the payment who sends a request to the payor’s bank. The funds are then withdrawn from the account by the bank and sent to the recipient. This requires prior authorization from the payor. Authorization can be for a single payment or for recurring transactions.

For more information on ACH payments, check out our complete guide.

So, what’s an e-check?

E-check stands for electronic check and is one way to make a one-time transfer of funds between two accounts using the ACH network (which explains some of the confusion we discussed earlier).

E-checks were invented as an alternative to paper checks. Instead of providing your vendor with a piece of paper that has your bank account and routing numbers printed on it (aka a check), you provide the details through an online e-check authorization form.

By filling out and sending the form, the payor (that’s you) authorizes the payment. The payee (your vendor) then issues a withdrawal request to the bank, which processes the payment as an ACH debit. This part typically happens automatically once the electronic form is received.

The difference between ACH transfers and e-checks

Many people refer to any payment sent through the ACH network as an e-check. However, e-checks are just one type of electronic transfer processed through ACH.

ACH and e-check mainly differ by:

Frequency

E-checks are one-time transactions. This means that payment details are never saved when sending an e-check so you need to fill out the authorization form each time you want to make a payment.

ACH bank transfers can be recurring, whether they are debit or credit payments. This means you fill out the details just once to make multiple payments.

Speed

Because the bank information isn’t saved when paying with an e-check, it may take an additional 1-2 business days to process, on top of the 1-3 business days required for a standard ACH.

Fees

While fees vary according to your payment processor, e-checks typically cost up to $1.5 per transaction while a regular ACH transfer is normally under $1. Some digital accounts payable (AP) tools, including Melio, charge no fee at all for ACH transfers.

Which is better for my small business, ACH or e-check?

As we’ve already established, E-checks are just one type of ACH, so it’s not really about which is better in general. It’s about what’s best for your business or a particular transaction.

Since e-checks are meant for one-time payments, require additional processing time, and cost more, they can be a less convenient option in many cases, especially for small and medium-sized businesses (SMBs). Other forms of ACH can be easier to operate and much cheaper, especially if you use a digital tool.

But if, for example, your customer doesn’t want their bank information saved when they send you a payment, an e-check could be a great solution.

Start sending and receiving ACH payments for free

Did we mention sending ACH transfers via Melio is free, with no subscriptions or hidden fees? Well, it is. So, sign up today to handle all your business payment needs—it’s easy, cost-effective, and just good for business.