ACH transactions or Automated Clearing House is the electronic processing of a financial transaction. While it is not a commonly recognized term, it is a frequently utilized transaction used often by consumers. ACH allow for the transfer of funds with less risk but more efficiency and speed.
There are many daily transactions that fall under the ACH classification. Examples are direct deposit or automating payments for billers. Popular forms of payment such as Zelle and Venmo are also ACH transactions, as are online purchases. ACH was developed in the 1960’s to reduce the amount of written paper checks that were anticipated to overload the banking system. By the early 1970’s ACH was being used primarily in California and operated by the Federal Reserve and the Electronic Payment Network (EPN). Direct Deposit was one of the first results of ACH and successfully implemented by government entities such as the U.S. Air Force and the Social Security Administration.
ACH is one of the most common forms of payment used. Businesses can directly pay vendors and suppliers. Companies and individuals can easily transfer funds between bank accounts, schedule direct payments and set up direct deposits. ACH functions in two ways. The creditor can deduct funds from an account on a scheduled day every month as an automatic payment. The other option is to electronically pay the debt when the bill is due or on an as needed basis.
Advantages of using ACH include the fact the transaction is instant, so there is not a delay in waiting for a paper check to clear. Avoiding late fees and the risk of losing checks or having them tampered are additional benefits. The disadvantage is that your banking information must be shared which can be a risk regarding security. There are numerous safeguards to prevent personal information from being compromised, however, there is always the slight possibility of it occurring.
The development of ACH has forever changed the manner in which finances are transacted, facilitating processes and making the exchange of funds more efficient and faster. ACH is used worldwide, resulting in business transaction efficiencies and the speed which funds are exchanged. Consider the many ways ACH can be used to your advantage.