ACH Payments 101 – How ACH works for businesses

ACH payments are electronic bank-to-bank transfers processed through the Automated Clearing House Network, typically taking 1-3 business days and costing $0.05-$5 per transaction. They serve as the backbone for payroll, billing, and digital wallet funding across millions of businesses. Plaid supports ACH transactions with products like Auth for instant account verification and Transfer for all-in-one ACH payments. By enabling real-time account connectivity and risk monitoring, Plaid helps billers streamline payment flows, reduce fraud exposure, and deliver a more seamless billing experience for customers.

What does ACH stand for?

ACH stands for Automated Clearing House, representing the electronic network that processes batch transfers between U.S. bank accounts. For large enterprises, fintech companies, and embedded finance platforms, ACH serves as the foundational infrastructure enabling everything from payroll automation to subscription billing and digital wallet funding. Plaid's Auth product verifies account information instantly, while Transfer facilitates all-in-one ACH transactions directly within applications. The ACH Network handled over 33.6 billion payments valued at $86.2 trillion in 2024, demonstrating its pivotal role in the U.S. financial ecosystem.

• ACH (Automated Clearing House): A U.S. network for batch-processing bank-to-bank transfers. Backbone for direct deposit, bill pay, and digital payouts.

• ACH Transfer: A payment initiated through the ACH network. Includes both debits (pulls) and credits (pushes).

• ACH Credit: Push payment. Funds are sent from an originator to a recipient. Used for payroll, vendor payouts, etc.

• ACH Debit: Pull payment. Funds are withdrawn from a customer’s account (with authorization). Used for billing, subscriptions, and utilities.

• Direct Deposit: Consumer-facing term for an ACH credit. Commonly used for salary or government benefits.

• Direct Debit: Consumer-facing term for an ACH debit. Used in autopay setups and recurring bills.

• eCheck: A check replacement processed via ACH. Used in online bill pay and legacy payment systems.

• ODFI (Originating Depository Financial Institution): A bank or credit union authorized to initiate ACH transactions for an originator.

• RDFI (Receiving Depository Financial Institution): The recipient’s bank. Posts the ACH transfer to the end user’s account.

• Nacha: The nonprofit governing body that sets ACH rules and ensures network compliance.
  Same-Day ACH: Accelerated ACH transfer that settles within the same business day. Useful for time-sensitive payments.

• Return Code: Code provided when an ACH transfer fails or is subsequently returned. Indicates the reason for failure/return like non-sufficient funds (NSF), closed accounts, or authorization problems.

• Return Risk Assessment: Evaluates the likelihood of an ACH transfer being returned. Tools like Plaid Signal help automate this step.

• ACH Authorization: The process of getting permission to debit a user’s account, required for all ACH debits. Can be done via signed forms, online prompts, or embedded flows.

• Bank Account Authentication: The process of validating account information; may include verifying ownership of the account.

• Instant Authentication: A process to instantly verify bank account information.

What is an ACH payment?

An ACH payment is an electronic funds transfer that moves money between bank accounts using the Automated Clearing House Network rather than individual bank networks. Unlike wire transfers or real-time payments, ACH transactions are processed in batches, which lowers costs and makes them well-suited for recurring payments, payroll distribution, high-volume business operations, and both small and large-dollar transactions.

Types of ACH transactions

ACH transactions are divided into two primary categories based on the direction funds are moving. ACH credits push money from the originator to recipients, commonly used for payroll disbursements, gig worker payouts, tax refunds, and vendor payments. An ACH debit pulls funds from customer accounts with authorization, powering recurring subscriptions, loan repayments, utility bills, and mortgage payments. 

ACH payments can settle as either standard ACH (typically 1–3 business days) or Same-Day ACH, which clears within the same business day. Same-Day ACH is higher-cost and useful for urgent disbursements or last-minute bill payments, while standard ACH has a lower cost per payment and remains the default for most recurring and high-volume transactions.

Direct deposit represents the most recognized form of ACH credit, with employers, government agencies, and financial institutions pushing funds directly into recipient accounts. The ACH Network processed 8.6 billion direct deposits in 2024, covering payroll distributions, expense reimbursements, tax refunds, social security benefits, and annuity payments.

ACH direct debit enables businesses to collect payments directly from customers’ bank accounts. This payment method powers subscription services, insurance premiums, loan payments, and other bills, creating predictable cash flow while lowering processing costs compared to card payments. Businesses that use ACH payments typically see 40% lower transaction fees compared to credit card processing.

Person-to-Person (P2P) transfers operate through different mechanisms depending on the platform. Venmo and Cash App, for example, use closed ecosystems for internal transfers, and ACH is used when adding or withdrawing funds from your account. On the other hand, Business-to-Business (B2B) ACH transactions are used for payments such as supplier invoices and for transferring funds between businesses. Same-Day ACH processing has expanded these use cases, with businesses leveraging faster settlement times for time-sensitive payments and cash flow optimization.

How ACH payments work

ACH payment processing follows the following typical workflow:

1. Account Connection: The customer provides their bank account and routing number, either manually or through a secure account-linking service, to establish the details needed for payment initiation.

2. Authorization: The payment originator obtains explicit authorization from the account holder, either through written agreement, electronic consent, or authenticated digital approval.

3. ODFI: The Originating Depository Financial Institution (ODFI) receives the payment instruction and then submits the transaction to the ACH operator.

4. Processing: The ACH operator (Federal Reserve or The Clearing House) sorts transactions by destination and groups them into batches, creating settlement files for each Receiving Depository Financial Institution (RDFI) in the network.

5. RFDI - Posting Transaction: The RDFI receives the transaction file and posts credits or debits to customer accounts, or may return transactions based on issues such as insufficient funds or closed account status.

6. Settlement: The actual money movement between financial institutions occurs at their Federal Reserve accounts, typically occurring one business day after the initial processing date.

7. Post-settlement Return: Failed payments trigger return codes that specify rejection reasons, enabling originators to address issues and retry when appropriate. Some returns will occur shortly after the payment was initiated, while other returns (such as when the customer claims payment was unauthorized) can occur for up to 60 days after initial settlement.

To see how this process comes to life in practice, check out how Wave uses Plaid to power secure, seamless ACH payments.

See the diagram below for a visual flow of how ACH payments work:

What is the automated clearing house (ACH) network?

The Automated Clearing House Network operates as a centralized electronic payment infrastructure managed by Nacha (National Automated Clearing House Association). This network connects virtually every U.S. bank and credit union, creating a standardized framework for electronic fund transfers that supports both consumer and commercial payment needs.

Nacha governs the ACH Network by maintaining and updating the operating rules that require consistency, security, and compliance across participants. Nacha is constantly updating or changing these rules to reflect evolving payment needs and risk concerns, so it’s critical for businesses and financial institutions to stay up to date.

Watch our webinar with Nacha to learn more about the latest rule change, breaking down the biggest ACH fraud update in decades.

How long do ACH transfers take?

Standard ACH payments typically require 1-3 business days for settlement, though Same-Day ACH options provide faster processing for time-sensitive transactions. Same-Day ACH volume grew 45% year-over-year in 2024, reaching $3.2 trillion in total value as businesses increasingly prioritize faster payment rails. Same-Day ACH settled 336.4 million payments worth $980.3 billion in Q2 2025, demonstrating growing demand for accelerated ACH processing. Plaid's Transfer product supports both standard and Same-Day ACH options, enabling businesses to balance cost efficiency with speed requirements based on specific use case needs.

ACH vs wire vs instant payments

ACH, wire, and instant payments each have different trade-offs in speed, cost, and ideal use cases. ACH payments offer the lowest per-transaction costs but require 1-3 days for settlement, while wire transfers are complete within hours but cost $10-$30 on average per transaction. 

Instant payments, which include the RTP (Real-Time Payments) network and FedNow, provide near-instant settlement. These payments can involve both instant payouts (payor pushes funds to payee’s account) and instant pay-ins (payor receives request for payment for bill or other amount due, and authorizes instant payment). Instant payouts are much more mature than instant pay-ins, with most institutions already supporting them. In contrast, instant pay-ins are still in the early stages, with limited financial institution coverage. 

Although instant payments typically carry higher fees and are less widely adopted than ACH, Plaid supports all available bank payment rails, allowing businesses to offer multiple payment options through a single, secure platform.

ACH

• Speed: 1–3 days (Same‑Day option)

• Typical fee: $0.05-$5

• Best for: Payroll, invoices, recurring bill payments

Wire

• Speed: Minutes–hours

• Typical fee: $10-$30

• Best for: Large urgent payments, requiring  settlement finality

Instant Payments

• Speed: Seconds

• Typical fee: $0.3-$7

• Best for: Loan disbursements, claims payouts

ACH fees & cost

Businesses typically pay $0.05–$5 per standard ACH transaction, making it one of the most cost‑effective payment rails. Monthly gateway or batch‐file fees often range from $5 to $30, and processors may add fees per transaction depending on volume commitments. 

The primary costs of ACH come from failed payments, which can result in unrecoverable losses. Other expenses include the manual work required to resolve returns and contact customers for repayment, as well as the investment in systems to prevent fraud and other losses. While these costs are spread across transaction volume to keep per-transaction fees low, they still represent a significant part of the overall ACH cost structure.

What is the difference between ACH and EFT?

Electronic Funds Transfer (EFT) refers to a broad category encompassing all electronic money movements. ACH, on the other hand, represents one specific type of EFT processing. EFT includes wire transfers, card transactions, real-time payments, and international remittances, whereas ACH specifically refers to batch-processed transfers through the Automated Clearing House Network. 

Understanding these distinctions is important when establishing relationships with a payment processor, such as a bank or platform like Plaid, as it helps businesses choose the right payment rails based on speed, cost, and geographic reach for their specific needs.

How to accept ACH payments as a business

Being able to accept ACH payments as a business requires the proper infrastructure, operational processes, compliance frameworks, and processing relationships to handle electronic fund transfers. Businesses must navigate network rule requirements while setting up technical capabilities that support both one-time and recurring payment scenarios. Here’s how:

1. Establish a relationship with a processor: First, you need to establish a relationship with a processing partner. This could be a bank that provides Originating Depository Financial Institution (ODFI) services or a third-party processor such as Plaid, Fiserv, or Stripe.

2. Implement account verification: Deploy systems to validate account and routing numbers before processing payments. Effective account verification minimizes manual errors, prevents fraud, reduces returns, and streamlines the customer experience. Plaid’s Auth makes account verification seamless, Balance provides instant access to account funds, and Identity verifies bank account ownership, all of which work together to prevent fraud and returns. 

3. Obtain proper authorization: Secure explicit customer consent through written documentation or Nacha-compliant digital approvals.

4. Configure processing infrastructure: Set up processing systems like batch file processing, clearing schedules, and return handling to manage transaction flows.

5. Deploy risk and fraud monitoring: Establish systems to detect onboarding fraud, assess risk, and monitor transactions using tools like Signal and Protect. Signal is a payments risk platform that evaluates the risk of ACH transactions to help businesses reduce payment failures and returns.  Protect is a real-time fraud detection and risk scoring tool, enabling businesses to prevent fraud without compromising user experience.

6. Create return management procedures: Develop workflows for handling failed payments, managing retry logic, and communicating with customers about payment issues.

Benefits & downsides of ACH

ACH payments provide advantages for businesses seeking cost-effective, scalable payment processing, though they also present specific limitations that require careful consideration.

Benefits of ACH for businesses:

• Low cost to scale: Per-transaction fees of $0.05-$5 enable profitable processing of high-volume, low-value payments.

• Easy to automate: APIs from banks and processors make it simple to automate ACH payments for recurring billing, payroll, and subscription management systems.

• Consumer-trusted: ACH payments are widely recognized and linked directly to customers’ bank accounts, providing a reliable and trusted method for transferring funds.

• Easy account verification: Solutions like Auth make account verification quick, easy, and user-friendly.

• Coverage across all U.S. banks: Universal participation among financial institutions ensures a broad customer reach.

Downsides of ACH for businesses:

• Delayed settlement: 1-3 day processing times limit cash flow and create the risk of returns due to insufficient funds. For example, a car dealership might process a customer’s ACH payment for a down payment, only to have the payment returned days later, creating operational and financial risks for the business. In addition, payments can be returned as unauthorized for up to 60 days after settlement, leading to a lack of finality or unexpected returns.

• Complex return/reversal rules: Nacha codes require specialized handling and can create operational overhead.

• Cutoff times can vary by bank: Processing schedules differ across institutions, complicating batch timing optimization.

• No international coverage without IAT: International ACH Transactions require additional compliance frameworks and higher costs.

The future of ACH: What to expect

The ACH Network continues to evolve to meet modern payment demands while maintaining the cost-effectiveness and reliability that have made it foundational to U.S. commerce. As the Nacha board chair notes, ACH is “core to the U.S. infrastructure. It’s core to the economic power that sits within the U.S. and other geographies as well.” This evolution encompasses enhanced processing speeds, strengthened fraud controls, and new technological integrations that expand ACH capabilities without compromising its fundamental advantages.

Growing Adoption & Enhanced Speed

Same-Day ACH adoption continues accelerating as businesses seek faster settlement times while maintaining ACH's cost-effectiveness. Enhanced processing windows and expanded settlement flexibility enable more strategic timing of payment flows. 

Traditionally used for payroll, billing, and standard transfers, ACH is now expanding into new areas such as e-commerce with “pay by bank” options, a shift that Plaid is helping enable by connecting customers’ bank accounts for fast, secure payments. Real-time payment integration can enable hybrid ACH/instant rails processing that optimizes speed and cost based on transaction characteristics.

Strong Requirements Regarding Risk & Fraud

Nacha is rolling out new fraud management requirements in 2026. Starting March 20, 2026, large payment originators and their service providers will be required to implement fraud monitoring, while large receiving banks must begin ACH credit monitoring.

By June 22, 2026, these requirements will extend to all non-consumer participants in the ACH network. To prepare, organizations will need to implement fraud monitoring using a risk-based approach. They’ll need to track and understand their level of risk and implement fraud detection, account validation, and risk mitigation aligned with their ACH programs. 

Plaid’s entire suite of payments products (Auth, Balance, Identity and Signal) can be used to fulfill these requirements. In addition, Protect complements this by offering real-time risk scoring and fraud detection to help businesses identify fraud and stop it in real-time.

New Technologies

Open banking initiatives, API standardization, and embedded finance platforms transform how businesses integrate ACH capabilities. Account-to-account payment flows become more seamless through modern APIs that abstract technical complexity while maintaining data security. 

These technological advances enable businesses to offer sophisticated payment experiences while leveraging the cost-effectiveness of ACH.

How Plaid Can Help You Embrace the Future

Plaid's comprehensive Payments solution enables businesses to leverage the benefits of ACH without building complex infrastructure. From account verification through Auth to payment risk insights viaSignal, Plaid provides the foundational components for modern ACH implementation while ensuring future compatibility with emerging payment standards.

ACH payments: Frequently asked questions

Can an ACH payment be reversed or refunded?

ACH payments that are unauthorized may be returned within 60 days, while other returns for insufficient funds or account issues occur within a few days. Voluntary refunds must be issued as separate credit transactions. To reduce disputes, businesses should obtain clear consumer authorization for payments and maintain proper documentation.

What information do I need to send or receive an ACH payment?

ACH transactions require the recipient's bank routing number, account number, account type (checking/savings), and proper authorization. Plaid's Identity and Auth products can verify bank account ownership and account details instantly to ensure accurate payment routing and reduce return rates.

What fees are normally charged for ACH transfers?

ACH fees for businesses typically range between $0.05 and $5 per transaction, with the exact amount varying based on transaction volume and which bank or financial institution handles the processing. Volume discounts and flat-rate pricing models can reduce per-transaction costs for high-volume processors.

What happens if an ACH debit is returned for insufficient funds?

When an ACH debit is returned for insufficient funds, a specific return code is generated to indicate the reason. Both the account holder and the originator may incur fees, and the payment does not settle. Businesses can retry the payment, but must comply with Nacha rules for retries.

What is Same Day ACH and who can use it?

Same-Day ACH enables settlement within hours rather than days, available for transactions under $1 million. Businesses can leverage Same-Day processing for urgent payments, though fees are typically double the standard ACH fees.

Are ACH transfers limited to U.S. bank accounts?

Standard ACH processing requires U.S. bank accounts, though International ACH Transactions (IAT) enable transfers to foreign accounts with additional compliance requirements. Cross-border payments often benefit from specialized international transfer services rather than ACH processing.

What’s the difference between ACH credit and ACH debit?

​​ACH credits push funds from the originator to recipients (like payroll), while ACH debit pulls money from customer accounts with authorization (like subscription payments). Both transaction types use the same processing infrastructure but require different authorization and risk management approaches.

How can businesses reduce ACH payment failures?

Account verification through Auth, payment risk detection via Signal, and fraud detection such as Plaid Protect can significantly reduce return rates. Proper customer authorization, accurate data collection, and proactive and clear customer communication also minimize payment failures and associated costs.

Final notes

ACH payments provide the foundation for cost-effective, scalable electronic payment processing that powers everything from payroll automation to subscription billing. Understanding ACH mechanics, processing times, and cost structures enables businesses to optimize payment strategies while maintaining network compliance and customer satisfaction.

Plaid's comprehensive fraud and payment solutions, including Transfer, Auth, Protect, Signal, and Identity, simplify ACH implementation while enabling businesses to perform better with advanced tools. Transfer enables fast, secure movement of funds across any bank payment rail, while Auth securely verifies a user’s bank account and routing numbers, simplifying the initiation of ACH payments and wire transfers. Protect delivers real-time fraud detection and risk scoring, Balance provides instant access to account balances, and Signal evaluates risk of transactions in real time to reduce payment failures and returns.

Explore Plaid's payment solutions and discover how leading fintech companies leverage our infrastructure to process billions in ACH volume while maintaining industry-leading security and compliance standards.