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What is an ACH payment? The complete guide

A small business owner using a computer to send an ACH payment to a vendor.
Headshot of Arielle Meimoun.
Arielle Meimoun
Published at | Updated:

If you’ve ever paid a bill electronically or received a direct deposit from an employer, you’ve probably encountered the terms ACH payment, ACH bank transfer, or just ACH. 

In this guide, we’ll explain what is ACH, why it’s important for your business, how it works, and how to use it as a secure payment method.

Part 1: What are ACH payments?

In this chapter, we’ll discuss the basic definition of ACH, a brief history, and the role of Nacha, the organization that oversees it.

The definition of ACH

Also referred to as ACH transfers, ACH payments are a type of electronic funds transfer (EFT)

These payments are made through the Automated Clearing House network (ACH network for short). 

The ACH network is composed of banks and other financial institutions (also known as clearing houses). The network provides an efficient way to directly transfer funds electronically between bank accounts—without using paper checks, wire transfers, credit cards, or cash. 

When you make an ACH payment, data is sent by your bank to another institution within the Automated Clearing House network, and, pending their approval, the money is drawn from your account and deposited into the recipient’s bank account. 

ACH payments are often used for direct deposits, payroll, vendor payments, and consumer bills—but we’ll get into the use cases a bit later in this guide. First, let’s take a look at how ACH came to be. 

A brief history of ACH payments

In the 1970s, banks began to realize that dealing with the volume and rapid spread of checks, especially for business payments, was becoming a challenge. That’s when the ACH network was born, as a way for banks to communicate electronically for the quick and secure transfer of funds.

Over the next few decades, ACH payments evolved through technological advances and regulatory changes, as the need grew for faster, more secure, and more efficient payment methods. 

How common are ACH payments, you ask? Well, according to the most recent data, in the third quarter of 2023 alone, 7.8 billion ACH transactions were processed, amounting to a total value of $19.7 trillion.

The role of Nacha in ACH transactions

ACH payments and the ACH network are governed and regulated by a non-profit organization called Nacha (National Automated Clearing House Association)

Nacha works closely with government agencies, including the Federal Reserve, the U.S. Treasury, and state banking authorities, to ensure the payment process is safe and reliable and that both parties are who they say they are.

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Part 2: How ACH payments work

Here, will discuss the mechanics of ACH payments, cover the different types, and compare them to other payment methods.

The different types of ACH: ACH debits and ACH credits

There are two main types of ACH transfers: debits and credits. In this chapter, we’ll discuss both types and explain how they work to give you more control over your spending and increase overall transparency.

ACH debits

An ACH debit (also known as ACH withdrawal and sometimes referred to as an e-check) is a type of ACH transfer where funds are pulled from a bank account. 

This type of ACH payment is initiated by the recipient of the funds, who submits a payment request to the payor’sPayorAll transactions have at least two players–the payor is the one who’s paying, and the payee is the one who receives the payment. bank. 

Upon the account owner’s approval, which is typically given in advance, the money is deducted from their account and sent to the requesting party. 

ACH debit is typically used for recurring payments, like rent or utility bills. It’s convenient as the payeePayeeAll transactions have at least two players–the payor is the one who’s paying, and the payee is the one who receives the payment. can automatically charge the up-to-date sum each month, with no additional action needed by the payor. 

ACH credits

An ACH credit is your more typical bank transfer where funds are pushed into a bank account. ACH credits are initiated by the payor and sent directly to the recipient’s bank account. 

ACH credit is used for a variety of payments. The government often uses it to send social benefits to citizens, for example, while a business may choose ACH credit to pay for goods and services. A form of ACH credit called direct deposit is often used by employers to pay salaries.

ACH credit is the most common type of ACH for business-to-business (B2B)Business-to-business (B2B)Business-to-business refers to operations done between businesses. B2B payments are transactions made between two businesses or companies. transactions, and it’s also used by Melio and other digital accounts payable (AP) tools. 

The difference between ACH and wire transfers

Both ACH payments and wire transfers are electronic payment options, but there are some distinct differences between them. 


The fees associated with ACH transactions—typically up to $1.5—are significantly lower than those of wires, making them a better fit for everyday transactions, and recurring payments like bills, payroll, utilities, and rent. 

Wires typically cost a flat fee of $15-$35 for a domestic transfer, regardless of its volume.


Wire transfers usually arrive on the same day while ACH can take up to three business days. This makes wire better for urgent payments when you’re willing to pay more to send the money as soon as possible.

However, given the high cost of wire transfers, it may be best to consider an expedited same-day ACH transfer for smaller transactions. Unlike wires, fast ACH fees are more commonly charged as a certain percentage of the full amount. Melio, for example, charges a 1% fee for fast ACH with a $30 cap.


While they can be used internationally, depending on your bank, ACH bank transfers are more common within the U.S. while wires are widely used all over the world. But, international wires can be expensive, costing up to $50 in fees. The solution? Use Melio to pay across borders for a $20 fixed fee.

What’s the cost of ACH transactions?

The costs of ACH payments depend on your financial institution and the type of transaction you choose. 

Standard domestic ACH payments typically cost up to $1.5 per transaction. This average cost is usually charged as a flat fee for each payment, but some processors may offer subscriptions that include a certain number of free ACH transfers or charge the fee as a portion of the payment. 

The fee for same-day ACH is often charged as a percentage of the total sum and varies according to your processor and plan. 

Check out Melio’s pricing page for more information about the cost of ACH transfers for your business.

How long do ACH payments take to process?

When sending a standard ACH payment, you should account for one to three business days for processing.

This means that if you send the payment on Monday morning, it could take until Thursday for your vendor to see the money in their account. 

This is much faster than delivering your average paper check, but there may be a moment when you want to get your vendor paid faster.

Many payment solutions offer a variety of faster payment options in case you’re in a time crunch. 

Fast ACH, also known as same-day ACH, can be used to expedite an ACH payment to your vendor. With Melio, you can also ensure your vendor gets paid on the same day1 by choosing to pay with a card.2 

If you’re looking for an even faster turnaround time, you can opt to pay vendors via 

instant bank transfers3 through Melio. This means you can pay at the last second and your vendor receives the payment immediately. 

Part 3: The benefits of ACH payments

By now, you already know that ACH transfers are a fast and reliable way to send payments. Here are a few more reasons to pay with ACH.


The fees for domestic ACH payments are significantly lower than the cost of sending wire transfers or paper checks.


The ACH network is designed to protect your data and prevent fraud. The data you send over the network is also encrypted to minimize the risk of theft, forgery, or loss. 

Unlike checks or cash, ACH payments are always documented and trackable, so you’re never surprised by an unlisted payment. 

ACH payments also come with a grace period in which you can dispute and reverse suspect transactions.

Increased efficiency through automation

With ACH, you can make your life easier by automating recurring payments. Whether it’s paying employees, getting paid by customers, or paying your business bills, automatic online payments can reduce manual intervention and ensure timely payments.

Easier reconciliation

Paying your business bills online with ACH reduces manual data entry errors and makes reconciliation more efficient.

Improved cash flow

Scheduling all your payments in advance with ACH helps keep your small business organized and maintains good workflows.

You can rest assured your payments will go out in time for their due date while holding on to your money for longer and improving cash flow. 

This gets rid of the uncertainty of when a check will be deposited, or funds withdrawn, not to mention the extra time, cost, and penalties incurred if you forget to send a payment you held off until the last minute. 


Compared to checks, still among the most common payment methods for B2B, ACH transactions are lightning fast.


ACH transactions come with an estimated delivery date that you can share with the recipient, providing transparency throughout the process.

Part 4: Risks and challenges of ACH payments

Though most financial fraud attempts are check-related, ACH payment fraud can still happen. According to a recent report by the Association for Financial Professionals, in 2022, 30% of companies say they were targets of ACH payment fraud.

That doesn’t mean you should avoid ACH payments, as they are still considered one of the most secure payment methods out there. Instead, we suggest you learn how to protect your small business from the potential risks associated with ACH fraud.

What is ACH fraud?

ACH fraud involves the theft of funds through an unauthorized or fraudulent ACH payment.

Once the criminals illegally obtain the money, they often quickly withdraw the funds to a debit card or another account before a dispute can be opened.

Best practices for protecting against ACH fraud

By being more aware of the risks, keeping a close eye on details, and implementing a few extra security measures, you can significantly reduce your business’s exposure to ACH fraud. 

When using online financial tools, such as your bank’s website, accounting software, or payment platform, make sure your account is secure with a strong password and multi-factor authentication. It’s also highly recommended to use firewalls and antivirus software and to change your passwords often. 

Here are some more ways to protect your business from ACH fraud:  

  • Keep financial details on a need-to-know basis
  • Use three-way matching before paying an invoice
  • Don’t click on random links
  • When in doubt, call your vendor 
  • Educate yourself (and your team) about risks and security measure
  • Keep an eye on your bank account statements
  • Use trusted digital payment platforms like Melio

Part 5: Industries and use cases for ACH payments

Let’s start this chapter by quickly discussing which industries use ACH (spoiler alert: all of them). Practically every industry relies on ACH to receive payments from clients and also to pay business bills, including utilities and rent.

Some industries that benefit from ACH include construction, healthcare, retail, food and beverage, and even the trucking industry—we’ll get to that one in a minute.

Use cases for ACH payments

Here are some of the most common ways businesses use ACH: 

  • Payroll: Many businesses pay their employees via ACH direct deposits, which are typically set up through the company’s payroll software. 
  • Taxes:  Today, the vast majority of federal payments and tax collections are made via the ACH network, with very few exceptions. 
  • Automated or recurring payments: ACH is ideal for batched, automated, and recurring payments. This is why many businesses prefer ACH when paying vendors and suppliers. 
  • Getting paid: ACH is a secure, trackable, and convenient way for businesses to receive payments from customers directly to their bank accounts. Accepting ACH payments is also typically free.

Case study: How Aora Cargo saved $300 a month by using Melio for ACH payments

Aora Cargo, a family-owned trucking company, was using bank apps charging high fees to pay its drivers. As the company grew, its payment needs became more frequent and started costing it a lot of money.

The company then learned about Melio through its insurance agent and now uses it to pay its drivers, owner-operators, and dispatch service. 

Ignacio and Cecilia Araya, the husband and wife who own Aora Cargo, save three to four hours a week by being able to set up, access, transact, and review ACH transfers more quickly with Melio. 

The company also reduced its payment costs by about $300 a month since shifting to Melio while the drivers and dispatch services get paid twice as fast as before. 

“What I like about Melio is how easy it is to make and schedule payments,” Ignacio said, noting that Melio provides better visibility to track the company’s payments.

Check out Melio to send ACH payments to vendors and suppliers.Start now

Part 6: How to set up ACH payments

Understanding ACH payments is often the first step in implementing this payment method into your business’s workflows. 

Decide which areas of your business you will use ACH for. Are you going to switch employee payrolls to direct deposit? How about offering ACH as a payment method to your customers? Or using it to pay your vendors and suppliers? 

Once you’ve figured that out, reach out to your bank to learn about daily limits, transaction volume limits, and fees. If you find that your bank doesn’t offer you favorable terms—which is most likely the case—it may be time to consider a dedicated payment tool like Melio.

Ready to start sending ACH transfers? Learn how to do it for the first time with Melio.

Maximize the benefits of ACH with Melio

Now that we’ve established that ACH payments are a convenient, cost-effective, and secure way to make paperless online payments, why not try them yourself? 

When you use a dedicated payment tool like Melio, you can get started with ACH payments right away while streamlining the payment process and keeping your vendor relationships stronger than ever.

Send your first ACH payment with Melio today.Start now

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.