What are ACH Payments ? ACH Debit & Credit Explained

Understanding the difference between ACH payments and debit card transactions can help you determine which payment method is best for your business. Both are popular options for receiving customer payments, but they each have their benefits and drawbacks.

In this article, we’ll explain the basics of how debit cards and ACH (Automated Clearing House) payments work. Then, we’ll discuss the pros and cons of using either one for your business so that you have a full understanding of ACH vs debit card.

WHAT IS A DEBIT CARD PAYMENT?

A debit card is a payment card that deducts money directly from a consumer’s checking account to pay for a purchase. The transaction is processed through the same payment processing networks (Visa, Mastercard, American Express, etc.) as credit cards.

Debit cards are also called “check cards.” Sometimes they have the Visa or Mastercard logo on them, and sometimes they don’t. If you have a debit card that doesn’t have one of those logos, it probably means your bank has set up its own payment processing network.

When you use a debit card to make a purchase, the money is transferred from your checking account to the merchant’s account almost immediately. In contrast, when you use a credit card, the credit card company pays the merchant for the purchase and then bills you later.

Debit cards can be processed with or without a PIN (personal identification number), and a cash-back option is also available with some debit cards. Depending on your bank, you may be able to sign for purchases instead of using a PIN.

WHAT IS AN ACH PAYMENT?

ACH is an electronic check payment transaction – also called Automated Clearinghouse. This payment method is managed by NACHA or the National Automated Clearinghouse Association.

ACH payments are used for large volumes of payments, like most e-commerce companies, utility providers, and payroll management companies do. Bank transfers from one bank account to another also use the ACH payment method.

ACH payments work like this: the sender (or originator) initiates an ACH transaction request, which is then processed and settled by the ACH operator. The funds are transferred from one bank account to another through the ACH network.

The amount of time it takes for the recipient to receive funds depends on the type of transaction. Typically, transactions are processed within two to four business days. There are several types of ACH payments, and it’s important to understand the differences so you can use them effectively.

ACH DEBIT

ACH debit is one of the most popular types of ACH payment because it allows consumers to pay bills electronically, without having to write checks or use cash. It’s often called “direct debit” because it allows you to pay directly from your bank account.

This is how ACH Debit transactions work: When you set up an ACH debit transaction, you provide the payee with your bank account number and routing number. The payee then initiates a request for payment from their bank (known as an “originator”).

This request is routed through the ACH network to your bank. Your bank deducts the amount of the payment from your account and forwards it to the payee’s bank.

There are several different types of ACH debit, and some examples include:

• Point of Sale – POS transactions are processed by the ACH network when a consumer presents a debit card or credit card at a retailer.
• Point of Purchase – POP transactions are processed by the ACH network when a consumer initiates a debit transaction through an online form or website.
• Accounts Receivable Conversion – ARC transactions are processed by the ACH network when a company submits an electronic invoice to its customer, who provides authorization for the debit.
• Prearranged Payment and Deposits – PPD transactions are processed by the ACH network when an individual authorizes a company to debit their account for recurring payments, like utility bills or mortgage payments.

ACH CREDIT

ACH Credit is a payment method that allows you to send money from your bank account to a business. The funds are transferred electronically, so there is no physical check or money order.

In most cases, you’ll have to have an account with the same bank as the business you’re paying in order to use the ACH Credit transaction. However, some banks will allow you to open an account with them specifically for this purpose.

This is how ACH Credit transactions work: You provide your bank account information to the business you’re paying. This includes your routing number and account number.

The business initiates a request for the funds from your bank and the money is then transferred from your bank account to the business’s bank account. This typically takes 2 to 3 business days, and there is usually no fee for the ACH Credit transfer.

ACH PAYMENT VS DEBIT CARD – WHICH COMES OUT ON TOP?

Is a debit card an ACH payment? Although they are both processed electronically, there are differences between them, so no, they are not the same.

ACH VS CREDIT CARDS

While this article’s subject is ACH vs. debit cards, we will briefly touch upon credit cards.

Many companies use credit cards as a method of payment. However, credit card transactions are usually processed through a third-party credit card processing network like Visa or Mastercard. There are fees involved with these types of transactions and they can be higher than other methods like ACH. This is why some businesses prefer to use ACH payments to avoid the fees associated with credit card transactions.

The other thing is that ACH transactions clear faster than credit card payments. So if you are a business that needs to have the money from a transaction deposited into your account quickly, then using ACH transfer might be the best option for you.

But it’s not all rainbows and butterflies with ACH payments. There are some drawbacks with ACH when compared with credit cards.

One of the main setbacks with ACH is that funds are not guaranteed. This means that if a customer initiates an ACH payment and their bank doesn’t have the funds available or does not have sufficient funds, the transaction will not go through.

This can cause problems for your business if you are counting on that money to be deposited into your account quickly. Another thing to keep in mind is that some banks charge fees for ACH transactions.

DEBIT CARD VS. ACH PAYMENTS – READY TO MAKE A DECISION?

Ultimately, it’s all about finding the best solution for your business and customers. Debit and ACH payments offer a safe alternative to credit cards but have different benefits and drawbacks that you should take into consideration. It does help to do some research on each type of payment before making your final decision.

If you are not sure which option is the best for your business, reach out to Payment Savvy today to discuss your situation. Our Savvy Squad are experts in all facets of payment acceptance. We will work hand-in-hand with you to create the perfect payment solution for your current business needs and future goals. We look forward to hearing from you.