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Payments
9 min

What Is An ACH Payment? How It Works, Costs, And Setup

Learn what ACH payments are, how they work, what they cost, and how to set them up for your business.

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

Key takeaways

  • Use ACH to send low-cost, bank-to-bank payments for payroll, vendors, and recurring bills.
  • Choose ACH credits to push funds out and ACH debits to pull recurring payments in.
  • Compare ACH with wires on cost, speed, and reach before picking a method for each payment.
  • Set up ACH through your bank or a platform like Melio to automate and track payments.

What is an ACH payment?

An ACH payment is an electronic bank-to-bank transfer processed through the Automated Clearing House network. It moves money in batches between U.S. bank and credit union accounts, without paper checks, wire transfers, credit cards, or cash.

ACH payments are a type of electronic funds transfer (EFT). When you make an ACH payment, your bank sends the payment data to another institution in the network. Pending approval, the money is drawn from your account and deposited into the recipient’s account.

ACH is used for direct deposits, payroll, vendor payments, and consumer bills. Below, we cover its history and the role of Nacha before moving on to how transfers work.

A brief history of ACH payments

In the 1970s, banks realized that handling the growing volume of checks was becoming a challenge. The ACH network was born as a way for banks to communicate electronically for the quick, secure transfer of funds.

Over the following decades, ACH evolved through new technology and rules as demand grew for faster, safer, more efficient payments. Today, the ACH Network is a backbone of U.S. payments, moving $86.2 trillion across 33.6 billion payments in 2024.

The role of Nacha in ACH transactions

The ACH network is governed by a non-profit organization called Nacha (National Automated Clearing House Association).

Nacha works with government agencies, including the Federal Reserve, the U.S. Treasury, and state banking authorities. This keeps the payment process safe, reliable, and verified for both parties.

How does an ACH transfer work?

An ACH transfer moves money in a few clear steps. It runs through the network in batches rather than one payment at a time, which keeps costs low.

  1. The sender or recipient starts the payment and shares the bank account and routing numbers.
  2. The originating bank submits the payment to the ACH network.
  3. The network sorts and batches the payment with others.
  4. The receiving bank posts the funds, typically within one to three business days.

Types of ACH payments: ACH credits and ACH debits

There are two main types of ACH transfers: credits and debits. Both give you more control over your accounts payable and receivable.

ACH debits

An ACH debit (also known as an ACH withdrawal and sometimes an e-check) pulls funds from a bank account. The recipient of the funds initiates it by sending a payment request to the payor’s bank.

Once the account owner approves it, usually in advance, the money is deducted and sent to the requesting party. ACH debit suits recurring payments like rent or utility bills, since the payee can charge the current amount each month with no extra action from the payor.

ACH credits

An ACH credit is a more typical bank transfer that pushes funds into a bank account. The payor initiates it and sends the money to the recipient’s account.

ACH credit covers many payment types. Governments use it to send benefits, and businesses use it to pay vendors and suppliers. One form, direct deposit, is how many employers pay salaries.

ACH credit is the most common type of ACH for business-to-business (B2B) transactions. It is also available through Melio and other digital accounts payable (AP) tools.

ACH vs. wire transfers: what’s the difference?

Both ACH payments and wire transfers are electronic payment options, but they differ in cost, speed, and reach.

Cost

ACH transfers are relatively inexpensive, usually costing between free and a few dollars per transaction. That is far lower than wire payments, which typically cost a flat fee of $25 to $30 for a domestic transfer. Because ACH costs so little, it fits everyday and recurring payments like vendor bills, payroll, utilities, and subscriptions.

Speed

Wire transfers usually arrive the same day, while standard ACH can take up to a few business days. Wires are better for urgent payments when you are willing to pay more for speed.

Given the high cost of wires, an expedited same-day ACH transfer can be a smart choice for smaller payments. Melio, for example, charges a small fee for same-day ACH. Check Melio’s pricing page for the current rate.

Geography

ACH transfers are used within the U.S., while wire transfers are used worldwide. International wires can be expensive, often costing upwards of $50 in fees. When you use Melio to pay across borders, you get competitive exchange rates.

What’s the cost of ACH transactions?

ACH costs depend on your financial institution and the transaction amount. Standard domestic ACH payments typically cost up to a few dollars per payment.

This is usually a flat fee, though some processors include a set number of free ACH transfers or charge a percentage of the payment. The fee for same-day ACH is often a percentage of the total and varies by processor and plan.

Check out Melio’s pricing page for more on the cost of ACH transfers and other payment methods.

How long do ACH payments take to process?

A standard ACH payment sent through your bank takes about one to three business days to process. Send it Monday morning, and your vendor may see the money by Thursday.

That is much faster than mailing a paper check, but sometimes you need to pay faster. Many payment solutions offer faster payment options when you are in a time crunch.

Same-day ACH can expedite a payment to your vendor. With Melio, you can pay by fast ACH transfer or by card. For an even quicker turnaround, you can pay vendors instantly through Melio and they receive the money within minutes.

Benefits of ACH payments

ACH is a fast, reliable way to send payments. Here are the main reasons to pay with ACH:

  • Cost-effective: Fees are far lower than wires or paper checks.
  • Secure: The network encrypts your data and helps prevent fraud, and payments are documented, trackable, and reversible within a grace period.
  • Efficient: Automating recurring payments reduces manual work and keeps payments on time.
  • Easy to reconcile: Paying bills online with ACH cuts data-entry errors and simplifies reconciliation.
  • Better cash flow: Scheduling payments in advance keeps you organized and lets you hold your money longer while still paying on time.
  • Transparent: Each payment comes with an estimated delivery date you can share with the recipient.

Risks and challenges of ACH payments

Most financial fraud attempts are check-related, but ACH fraud can still happen. Even so, ACH is considered one of the safest payment methods available.

Rather than avoiding ACH, learn how to protect your small business from ACH fraud. Payment errors are another risk, and they come from simple human mistakes rather than bad intent.

Data-entry errors, like an incorrect account number or amount, can lead to failed or misdirected payments. Timing is a third challenge, since batch processing can take one to three business days. A platform like Melio tracks due dates and schedules payments so they arrive on time.

Are ACH payments right for your business?

If you want to move beyond checks and expensive wire transfers, ACH may be a good fit. Consider ACH if your business answers yes to any of these:

  • You pay vendors on a regular basis.
  • You have many employees on payroll.
  • You want to reduce payment fees.
  • You want to stop working with paper checks.
  • You have customers who prefer not to pay by credit card.
  • You have regular outgoing payments like rent, utilities, and subscriptions.

Industries and use cases for ACH payments

Practically every industry relies on ACH to get paid and to pay business bills, including vendor payments, utilities, and payroll. Industries that benefit from ACH include construction, healthcare, retail, food and beverage, and trucking.

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

  • Payroll: Many businesses pay employees by ACH direct deposit set up through payroll software.
  • Taxes: The vast majority of federal payments and tax collections move via the ACH network.
  • Recurring payments: ACH is ideal for batched, automated, and recurring payments to vendors and suppliers.
  • Getting paid: ACH is a secure, trackable way for businesses to receive payments directly to their bank accounts.

Case study: how Aora Cargo saved $300 a month with Melio

Aora Cargo, a family-owned trucking company, was using bank apps with high fees to pay its drivers. As the company grew, those payments became more frequent and more expensive. Aora Cargo learned about Melio through its insurance agent and now uses it to pay drivers, owner-operators, and dispatch.

Ignacio and Cecilia Araya, who own Aora Cargo, save three to four hours a week by setting up and reviewing ACH transfers more quickly with Melio.

How to set up ACH payments

Setting up ACH payments lets you pay vendors and staff electronically in a few steps:

  1. Decide where to use ACH, such as payroll direct deposit, customer payments, or vendor payments.
  2. Reach out to your bank to learn about daily limits, transaction volume limits, and fees.
  3. Or choose a dedicated payment tool like Melio that offers fast ACH alongside other payment features.
  4. Enter the recipient details, then schedule and track the payment.

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

Maximize the benefits of ACH with Melio

ACH payments are a convenient, cost-effective, and secure way to make paperless payments online. When you use a dedicated payment tool like Melio, you can start using ACH right away while streamlining payments and strengthening vendor relationships.

Once you switch your business to pay by ACH, you will wonder why you waited so long. Sign up for Melio today.

ACH payment FAQs

How do you pay someone via ACH?

You collect the recipient’s bank account and routing numbers, then send the payment through your bank or a payment platform. The funds move through the ACH network and post to their account, usually within a few business days.

Is Zelle an ACH or a wire transfer?

Zelle is a separate real-time payment service, not a standard ACH or wire transfer. It moves money between many U.S. bank accounts, often within minutes.

Is an ACH number the same as a routing number?

Your ACH routing number identifies your bank for ACH transfers. Some banks use a different routing number for wires, so check which one applies before you send.

Do all banks use ACH?

Nearly all U.S. banks and credit unions can send and receive ACH payments, since the network reaches all U.S. accounts.

*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.

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