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What Is an ACH Credit? How ACH Credits Work

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Bank account and routing numbers are pieces of financial information that are central to how one of the world’s largest payment networks operates.

ACH, which stands for Automated Clearing House, is an electronic money network that connects various financial institutions to one another for the sake of facilitating payments between accounts, regardless of which banks those accounts belong to.

What is an ACH credit? 

There are two types of transactions on the ACH network: ACH credits and ACH debits. The term ACH credit specifically refers to the type of transaction in which money is “pushed” from an originating account to a destination account. An ACH debit transfer, meanwhile, involves a receiving account “pulling” money from the source account.

The ACH system predominantly moves money domestically within the United States (though it can be used to transfer money internationally). ACH credits are a common way for companies to pay employees directly via their checking accounts, and serve to facilitate the payment of government benefits, issue refunds on a purchase, or make payments via services like Venmo and PayPal.

Based on industry data, the ACH system is an important piece of global financial infrastructure and a popular choice of payment method—ACH transfers accounted for the movement of some $51 trillion in 2018. 

ACH credits are generally easy and inexpensive to use. Funds reach their destination account within a few hours to a few business days, and the person issuing the ACH credit only needs to have the recipient’s name and banking information, routing number, and account number.

How do ACH credits work?

ACH credits are part of a digital money network that connects every major US financial institution. ACH serves as an electronic “highway” for quickly and easily moving money from one account to another. Whether it’s a small credit union, a major national bank, or even the Federal Reserve, the ACH network makes it possible to transmit money electronically.

As a mechanism to transfer funds, ACH credits must be authorized by both parties: the entity making the payment and the entity receiving the money. Each must sign off on the transaction before it can execute.

Adding another level of security (and redundancy), many ACH authorization forms make it possible for the paying account to retrieve the money it sends in case of accidental overpayment.

With both sides of this authorization complete, the entity initiating the ACH credit has their bank push the funds to a destination account. This “push” can be done as a one-off manual transaction, or it can easily be configured as a regularly recurring payment.

Every ACH transfer—whether credit or debit—accumulates in a batch of transactions before the ACH network processes them and verifies the transfers. The clearing house sends each transaction to its destination account. It usually takes two to five business days for funds to reach their destination, but it’s increasingly common to see ACH payments finalize the same day they are initiated.

Examples of ACH credits

People and businesses are most likely to use ACH credit transactions to pay bills, collect income, or receive benefits payments from the government. Whenever a routing number and account number are involved in making a transaction, that signals the transaction was likely an ACH transfer. Examples of ACH credits include:

Direct deposit

Direct deposits from an employer to an employee’s checking account are a type of ACH credit. The employer has likely set up an automatic recurring ACH transfer that operates as a credit—pushing the money from their bank account to yours.

Government benefits

Perhaps the most recognized example of receiving government benefits as an ACH credit transfer would be the $1,200 COVID-19 stimulus payment, distributed to every American who met certain requirements. In this case, the government pushed money from its accounts to recipients.

Purchasing goods online

There are times when simply typing in a credit card number won’t work for online purchases. When making purchases from a smaller merchant unable to process credit card payments (or perhaps a vendor operating overseas), ACH credits can work just as effectively to push money to a store or business owner.

Bill payments

It’s not uncommon for utility companies to require ACH payment for a water or electric bill. That’s why they might ask for a routing and account number, making it possible to pay the bill online. However, it’s not strictly limited to utility bills. It could be any type of bill if the company wants payment in this way.

Final thoughts

ACH credits are a quick and accessible way to move money from a sender’s account to a receiver’s account. Whether it’s to distribute worker salaries or government benefits, buy an item online, or pay a utility bill, the ACH network continues to be a kind of money superhighway that moves trillions of dollars in transactions in a year.

There’s little specialized knowledge or hardware required, and merchants aren’t required to invest in niche payment processing technology that can come with recurring fees. They only need a conventional checking account. The entity initiating the ACH credit only needs to know the destination routing and account number. ACH credits remain a simple and compelling way to do business across the US and worldwide.

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