ACH Debit vs ACH Credit: What’s the difference?
Many business owners are confused by the different types of ACH payments and are reluctant to use them. We’re here to sort this out for you.


Whether you are sending or receiving payments, ACH transfers are a reliable, inexpensive, and safe option for your business. To ensure the security of ACH (Automated Clearing House) payments, the whole process is overseen and regulated by Nacha in collaboration with government agencies, including the Federal Reserve, U.S. Treasury, and state banking authorities.
As a form of electronic funds transfer (EFT), ACH payments are completed online in just a few simple steps, helping businesses save time and resources on accounts payable. Unfortunately, some people are still confused by the different types of ACH payments so they remain reluctant to use them and miss out on all the benefits.
In this article, we’ll learn about the two main types of ACH—credit and debit—explore the differences between them, and discuss what each is used for. We’ll also walk through the process of ACH credit and debit payments, so you can understand how they work and perhaps even start benefiting from ACH payments in your business.
Let’s start with a discussion of an ACH credit meaning, so you can become familiar with the concept from the ground up.
What is ACH credit?
ACH credit payments are electronic transfers initiated by the payor, sending funds directly to the recipient’s bank account via the ACH network. The payor provides their bank with authorization to send funds to the payee’s account, ensuring efficient, timely payment processing.
For example, a hairdressing salon orders a supply of hair care products from its regular vendor, for the amount of $800. The salon (payor) authorizes its bank to transfer the money owed to the vendor’s (payee) bank account. The salon’s bank initiates the ACH credit payment, debiting the salon’s account $800 and crediting the amount to the vendor’s account. This entire transaction is processed through the ACH network, and the funds are received in the vendor’s account within a few days.
What types of payments are made via ACH credit?
ACH credit is commonly used for vendor payments, direct deposits, and other recurring payments. The government may use it to send social benefits to citizens, for example, while a business can pay for goods and services. How about ACH credit vs direct deposit? Direct deposit, which is also a form of ACH credit, is often used by employers to pay salaries.
ACH credit is the most common type of ACH for business-to-business (B2B) transactions, and it’s also used by Melio, the digital accounts payable tool.
Benefits of ACH credit
There are several reasons why ACH credit payments are so popular for business payments, including vendor payments and salaries. Firstly, ACH credit payments typically cost less than wire transfers or credit card payments. For businesses with a lot of outgoing payments and bills, this can save significant amounts on transaction fees.
ACH payments are processed through the secure ACH network and are much safer than traditional paper checks, which can easily get lost, forged, or stolen. Another huge advantage is the speed of ACH credit. These payments are processed quickly, within 1-3 business days usually, while checks and wire transfers take far longer.
Finally, ACH credit transactions are automated, so they are extremely convenient for busy teams. ACH payments can be scheduled in advance for automatic processing, saving the time and energy of manual payments.
What is ACH debit?
Now let’s talk about ACH debit meaning. An ACH debit payment is initiated by the recipient (payee) of the funds, who submits a payment request to the payor’s bank. Upon the account owner’s approval, usually provided in advance, the money is deducted from their account and sent to the requesting party.
What types of payments are made via ACH debit?
ACH debit is typically used for recurring payments where the payor has authorized the payee to draw funds from their account. For example, ACH debit is used for rent and utility bills, loan repayments, subscription or membership fees, insurance policy payments, and tax payments.
Benefits of ACH debit
ACH debit enables automatic, scheduled withdrawals so that recurring payments are made without the need for manual intervention. For businesses, this means payments are received automatically on a regular schedule, improving cash flow management. For the payor, this reduces the risk of late or missed payments, so they can avoid late fees and maintain a good payment history with the business.
Moreover, ACH debit transactions are often quicker and always less expensive to process than paper checks or credit card payments, which helps businesses reduce transaction fees and administrative overheads.
ACH credit vs. ACH debit: How ACH transactions work
For every ACH transaction, there are two parties involved: the payor and the payee.
Let’s explore how ACH transactions work for both parties, taking into account the difference between ACH credit and ACH debit payments.
ACH credit payment flow
A business receives goods from a supplier. The business will now pay the vendor via ACH credit payment:
From the business’s side (the payor):
- The business receives an invoice from the vendor and initiates an ACH credit payment.
- The business provides the transaction details to their bank, including the vendor’s bank account information, payment amount, and date.
- The business’s bank sends the payment instructions to the ACH network for processing.
- At the scheduled date, the business’s bank account is debited for the payment amount.
From the vendor’s side (the payee):
- The vendor is notified by their bank that an invoice payment has been initiated by the business.
- On the scheduled date, the ACH network processes the transaction and credits the vendor’s bank account.
- The vendor’s bank confirms that payment was received, and the funds are available for use.
ACH debit payment flow
A utility company charges a customer on a monthly basis for services provided. The customer pays via ACH debit payment:
From the company’s side (the payee):
- The company has been previously authorized by the customer to withdraw funds from their bank account. For example, a customer completes a form authorizing a gas company to take payments on a monthly basis from their account.
- At the appointed date, the company initiates the ACH debit payment by submitting a request to their bank to collect the funds from the customer’s account.
- The company’s bank sends the debit request to the ACH network for processing.
From the customer’s side (the payer):
- An ACH debit is initiated by the company to draw funds from the customer’s account. In some cases, the customer may be informed of this via email or SMS notification. Often, there is no notification and the payment is simply viewable on the bank statement after the fact.
- The customer’s bank verifies the authorization and processes the payment.
- The customer’s bank account is debited for the specified amount, and the funds are transferred to the company’s account. The transaction is now complete.
ACH credit and debit: A comparison
Is ACH debit or credit right for your business?
ACH is just one system of payments that your company can use, and so it doesn’t cover all the needs of every business.
It’s only available for bank accounts within the US, so it won’t allow you to pay international vendors or contractors. But for US-based transactions, it’s less expensive and faster than domestic wire transfers.
ACH transfers can also be set up as recurring transactions so you never forget a payment. However, when using ACH transfer you won’t earn rewards points like you would when you pay with a credit card. These are all factors to weigh when deciding which payment method to use.
Processing times for ACH transfers
ACH transfers typically take between 1 to 3 days to be processed. With Melio, regular ACH-to-ACH payments take 3 business days to arrive for Go an Core subscribers, and 2 business days for Boost subscribers. Melio also offers fast ACH payment options. Take note that fast ACH payments must be made by 2 p.m. ET in order to arrive on the same day.
Learn more about ACH payments
In this article, we only touched the tip of the iceberg when it comes to ACH. If you want to learn more about ACH credit and debit, and how ACH can help your business, check out our complete guide to ACH payments.
If you’re looking to include ACH payments as part of your accounts payable flow, why not give Melio a try? Simplify the entire payment process, and enjoy multiple payment methods and speeds, that suit each transaction.
*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.