How long does an ACH transfer take?

how long does an ACH transfer take

Last modified on March 26th, 2024

Over 29 billion payments were initiated under the ACH transfer network in 2021. In particular, b2b transactions skyrocketed throughout the pandemic, as remote payments became the only option for some businesses.

As businesses seek to continually innovate, it’s only natural to look towards ACH and find new applications. But how long does an ACH transfer take? And how safe is it?

At Trustpair, we secure all b2b payments by continuously auditing supplier data and controlling payments before they’re executed. We’ve already wiped out fraud for more than 200 large companies. Contact an expert to learn more!

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What is an ACH transfer?

ACH payments are a form of payment method, largely reserved for domestic US-to-US money transfers. They’re electronic, without the typical paperwork requirements of check payments.

They are widely considered to be the best payment method for businesses operating in the States since they’re much cheaper than wire transfers and faster than other payment types.

 

ACH transfer, definition & advantages

ACH stands for “automated clearing house”, the organization responsible for facilitating these bank transfers. The Clearing House is owned by 24 of the largest US banks and is an electronic network, rather than a physical entity.

ACH transfers typically work with lower value amounts and have limits much lower than wire transfers. But they’re incredibly cheap to process, costing approximately 0.5% of the transaction amount. Since ACH transfers need to be formally filed, they can take an average of 3 business days to process. If you’re in a hurry, same-day ACH transfers also exist.

ACH transfers are advantageous for businesses as they remove the need for paperwork. No more clunky check payments and no need for a card machine, ACH enables an easy money transfer without any fuss.

 

Different types of ACH transfers

There are two different types of ACH transfer:

  1. Direct depositS
  2. Direct payments

 

Direct deposits

Direct deposits within the ACH network are the term that usually describes money paid out of a bank account from a business. s They can refer to:

  • Salaries paid into employee accounts
  • Tax returns
  • Other benefits paid by the government

Th work when a company instructs its bank to send money to a recipient. After providing the correct account details and personal information, the bank then makes use of the ACH network to directly transfer funds to the recipient’s bank. The recipient bank then deposits the money into their account, in a completely automated financial process.

Direct payments

Direct payments, in the context of the ACH network, describe the money used to make a transfer, in the form of credits and debits. Credits are simple: they’re the funds transferred into an account.

But there are a variety of different types of debits, which include:

  • WEB (authorized online, internet-based entry)
  • TEL (authorized by phone)
  • PPD (pre-arranged and authorized by paper-based means)

 

How long does an ACH transfer take?

On average, ACH transfers take 3 days to process. Depending on the type of payment, ACH transfers can happen instantaneously or take up to 5 business days to complete. And if there’s an error within the files, you could end up waiting months for your funds as it’s entirely dependent on the third party: the ACH network.

The network relies on time-based windows to facilitate various payment actions. Since 2015, two extra windows have been added to facilitate same-day transfers. It now means that payments must be initiated before 1 pm EST to ensure the recipient receives the funds by 5 pm EST.

So if you happen to initiate your transfer outside of those windows, you could end up waiting until the next working day to get things moving, which will stretch out the entire process. To be sure, initiating payments before the first payment window at 9 am EST would give payees the best chance of getting through any urgent payments.

 

How does an ACH transfer work?

The science behind ACH transfers is really quite simple, as long as you know about two key terms:

  1. ODFI: originating depository financial institution
  2. RDFI: receiving depository financial institution

 

The payee will submit a payment request to their bank, the ODFI. This originating bank creates a file to formalize the transfer records, debits the money, and submits the file into the ACH network. The RDFI accepts the file and takes the money. They then deposit the funds into the recipient’s bank account.

Because these payment transfers happen in batches, banks group together each individual request into a larger action. Thanks to the filing system, it’s easy for institutions to know exactly who paid what, and break down the entire money transfer into individual transactions at the receiving end.

The only thing which varies in this process is the timeline. As mentioned, thanks to the existence of payment windows, ACH transfers can differ in the time they take to complete. For same-day transfers, the fast-moving nature of the process leads to a “same-day entry fee”, which is approximately $0.10 to $0.15 higher than standard ACH processing costs.

 

What are the limits of ACH transfers?

While ACH transfers can be beneficial for businesses, there are some limitations to be aware of:

  1. No instantaneous transfers
  2. Domestic payments only
  3. No work-arounds for errors

 

Firstly, the ACH network does not facilitate instantaneous transfers. These are managed by third-party platforms like Venmo and Paypal and formalized through the filing system later on. While these services are beneficial in situations where instant ACH transfers are necessary, they do pose security risks.

For example, when sent in real-time, most companies are unable to verify the details of their recipient. Instant payments open the door for fraudsters to pose as a genuine business and make off with your funds before you’re able to authenticate their identity.

Secondly, most ACH facilitators only support domestic payments, from US to US bank accounts. For businesses with international suppliers, this can be a huge inconvenience, and not easy to work around. If merchants can’t open up their own American accounts, you will have to look towards other payment methods to compensate suppliers.

Finally, one of the biggest limitations of the automated clearing house is the filing process itself. If there’s any type of error within the file, perhaps because of a mistyped account number, for example, then the transaction won’t work.

This is actually beneficial in the case of fraudsters posing as your real suppliers, attempting to get paid for a fake invoice, for example. But in the case of genuine mistakes, this can significantly lengthen the entire ACH transfer process. The pending payment is returned to the sender, and the process must start right back at the beginning. In some cases, this can delay payment by weeks.

What’s more, ensuring the security of the file is the responsibility of the ODFI. So if you’re expecting to receive money, your receiving bank won’t even be able to offer any help.

 

Is wire transfer faster than ACH transfer?

Yes, wire transfers typically take less time than ACH, approximately 24 hours for domestic payments and up to 2 days for international transfers. However, wire transfer fraud is prevalent, growing by 13% year-on-year.

To make use of all types of payments without worrying about the threat of fraudsters, a platform like Trustpair can help.

We secure payments by validating the bank, personal, and company details of your suppliers (even in international business partnerships). Working in real-time, we effectively block any transaction attempts where the details are misaligned, in order to protect your company from fraud.

Discover more tips to protect yourself in our latest fraud report!

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To recap:

How long does an ACH transfer take? Usually between 1-3 business days, since ACH transfers are batched together. But same-day ACH is available and guarantees that the recipient receives their funds on the same working day that they are sent, as long as the payment windows are abided by.

FAQ

The payment system takes up to three days due to the electronic funds’ transfer and formal filing system. The financial institutions process bank account information in batches, leading to a delay in funds transfer.

Financial institutions have specific windows to process ACH, so they don’t happen immediately. Having said that, you can get funds on the same day if it leaves the sender’s checking account before the 9 am window, or for a pre-authorized direct deposit on a recurring payment, for example.

Yes, any time you want to bill pay with ACH, it won’t happen as fast as a wire transfer. That’s because the routing system for funds transfer happens electronically in batches. The payee may have to wait for around three business days after they initiate for authorization to complete.

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