ACH Credit vs. ACH Debit: Key Differences Business Owners Should Understand

Behind the scenes, a worldwide network of payments handles payment processing every day. Banks, customers, businesses, and payment networks work together to ensure that each payment securely travels from the sender to the recipient. 

There are many different payment methods available. By learning more about ACH credit vs. ACH debit, you can access lower fees and more secure payments. These payment methods are used in different ways, so the right choice depends on the purpose. 

To learn more about ACH debit vs. credit, read on.

TL;DR

• ACH payments are sent through a secure network that is run by Nacha.
• These payments are subject to a $1 million transaction window. They are processed in a batch at set times.
• ACH debits are considered “pull” transactions, so authorized transactions are automatically pulled from the sender’s account.
• ACH credits are “push” transactions, so the transaction is initiated by the sender. 
• Typically, ACH debit transactions are used for recurring payments, subscriptions, and utility bills.
• Meanwhile, ACH credit transactions are used for payroll payments, tax refunds, and vendor payments.
• While fees can vary from one bank to another, the transaction costs are generally quite low. In most cases, the fee is less than $1 per transaction.
• Although ACH transactions are generally safer than many other payment methods, ACH debits do have some risks. For example, revoked authorization, disputed transactions, and unauthorized pulls can happen.
• ACH payments are processed on a different network than wire payments. While wire payments are faster, they cost more and are irreversible.

What Are ACH Payments?

ACH payments are processed through the Automated Clearing House (ACH) network. Run by Nacha, this network allows payments to be sent digitally from bank to bank. Direct deposits and direct payments are a secure, convenient way for individuals, businesses, and governments to transfer funds.

However, there are some limitations to ACH payments. All of the payments are settled in batches, which occur a maximum of four times a day. The Federal Reserve’s settlement system must also be open for the funds to settle. Additionally, all payments are bound by a $1 million transaction limit.

What Is an ACH Debit? 

To get a better understanding of the difference between ACH credit and ACH debit, let’s dive into how each payment type works, what it is, and how long it takes to process.

ACH Debit Meaning

An ACH debit is the most popular type of ACH transaction and is known as a “pull” transaction. Basically, this means that the receiver is effectively pulling the funds from the payer.

Unlike debit card transactions, ACH debit transactions are charged a much lower fee. They are also faster than ACH credit transactions because Nacha requires ACH debits to be completed in under a day.

In order to process an ACH debit, the recipient must provide their routing number and account number. Because of this, ACH debits are slightly less secure for merchants than ACH credit transactions.

How an ACH Debit Works

To get a better understanding of ACH debit vs. credit transactions, it helps to understand the basic process that each ACH debit goes through.

1. The Customer Authorizes the Transaction: Through a form, signature, or a similar method, the customer authorizes the merchant to withdraw funds from their account.
2. The Merchant Submits a Funding Request: Then, the merchant sends the funding request to their bank, the Originating Depository Financial Institution (ODFI).
3. ODFI Communicates With the ACH Network: The ODFI is responsible for sending the request to the ODFI network.
4. The Request Is Routed to the Customer’s Bank: From there, the ACH network routes the request to the customer’s bank, the Receiving Depository Financial Institution (RDFI).
5. RDFI Verification Occurs: The RDFI verifies that there are sufficient funds and the account is valid. They’ll also make sure the authorization hasn’t been revoked.
6. The Funds Are Pulled: If everything is in order, the RDFI will withdraw the funds and send a confirmation back.
7. Settlement Takes Place: Then, settlement takes place during the appropriate settlement window. Generally, this occurs on the same day or the next business day.

How Long Do ACH Debit Transactions Take? 

ACH debits can occur as a same-day or next-day transaction. Standard ACH debits are typically settled on the next banking day. However, they can be processed as a same-day transaction if the request is sent before the set cutoff times. According to Nacha’s rules, ACH debits cannot be scheduled more than a day in the future.

What Is an ACH Credit? 

When you receive a tax payment or pay a bill, you are likely using an ACH credit transaction. To get a better understanding of the difference between ACH credit and ACH debit, let’s get a closer look at the difference between these two transaction types.

ACH Credit Meaning

When comparing ACH credit vs. ACH debit transactions, there is one key difference. While ACH debits are “pull” transactions, ACH credits are “push” transactions. Instead of a merchant requesting the funds, the customer is responsible for “pushing” the transaction from their account and into the merchant’s account. In essence, it’s like writing a digital check that can be used for automatic bill paying or sending your employees their paychecks. 

While ACH credits have important differences, there are many similarities as well. Processing timelines tend to be the same. Similarly, routing numbers, account numbers, and other important information are still required for processing the transaction.

How an ACH Credit Works

To get a better look at the difference between ACH credit and ACH debit, take a look at how ACH credit transactions are processed.

1. The Sender Authorizes the Payment: Unlike ACH debits, ACH credit transactions begin when the sender initiates the payment by asking their bank to send a payment to another person or business.
2. The ODFI Sends the Request to the ACH Network: Next, the sender’s bank (ODFI) prepares the credit and submits the payment to the ACH operator.
3. The ACH Operator Routes the Payment to the RDFI: The credit entry is routed through the ACH network to the recipient’s bank, the RDFI.
4. The RDFI Receives the Entry: Once the RDFI receives and validates the account, it can apply it to the customer’s account balance. Depending on the bank’s rules, the funds may be posted to the account on the same day or the next business day. 
5. ACH Settlement Occurs: The actual movement of funds between the banks occurs through the ACH network.

How Long Do ACH Credit Transactions Take? 

Like ACH debits, ACH credits are typically processed as same-day or next-day transactions. To be processed on the same day, the credit must be submitted before the cutoff window ends. 
Additionally, some banks have policies that impact when ACH credits are posted. For example, some banks release the funds early.

Key Similarities and Differences Between ACH Credit vs. ACH Debit

When it comes to ACH debit vs. credit transactions, many of the policies and processes involved are the same. To get a better understanding of both types, check out some of the important similarities and differences between the two payment styles.

Feature	ACH Credit	ACH Debit
Directionality	Following the initiation of the sender, funds move from the sender to the desired recipient.	At the request of the payee, funds are pulled from the payer’s account and sent to the payee.
Authorization Requirements	The sender is responsible for authorizing their bank to send the payment.	The payer grants authorization to the payee (the merchant) to withdraw the funds.
Who Is Responsible for Initiating the Transaction	The payer (sender) is in charge of initiating the transaction.	While they must get authorization to carry out the transaction, the payee (merchant) is responsible for initiation.
Control	The sender has control over the amount and timing.	Once they have authorization, the receiver has control over the amount and timing.
Risk Level	This option is fairly low-risk for the sender. After it is sent, it can be hard to reverse.	ACH debit is higher risk for the receiver because of the increased potential for disputes and chargebacks.
What It Is Used for	ACH credit is frequently used for vendor payments, payroll payments, and tax refunds.	This payment option is effective for gym memberships, utilities, loan payments, and other types of recurring bills.
Timeline	While processing speeds can vary, this option is often available as a same-day payment. Alternatively, it may take one to two business days.	While processing speeds can vary, this option is often available as a same-day payment. Alternatively, it may take one to two business days.
When Businesses Use It	This is often used when businesses want to pay for something, such as payroll.	Companies typically use ACH debit to collect payments from customers.

What Are the Fees for ACH Debit vs. Credit Payments?

For businesses, payment processing fees can quickly add up. Fortunately, ACH debit and credit fees are relatively low. The following are just some examples of the ACH fees you can pay at popular banks.

• Bank of America: Bank of America charges $10 for next-day transactions. The institution doesn’t charge anything for three-day ACH payments as long as you request fewer than 20 per month.
• PNC Bank: At PNC Bank, $0.22 is charged per item received.
• TD Bank: If you receive a standard ACH payment at TD Bank, there is no charge involved.
• U.S. Bank: At U.S. Bank, merchants are charged just $1 for every ACH transaction processed.
• Wells Fargo: Accounts are charged $0.20 per ACH payment received. To send a same-day ACH payment at Wells Fargo, you’ll have to pay $1.50.

However, it’s also important to note that returned ACH payments, insufficient funds (NSF), chargebacks, and other factors can lead to higher fees. Because of this, it’s essential to be proactive about reading through your bank’s policies. Additionally, implementing chargeback prevention techniques can help you avoid unnecessary fees.

Is ACH Credit or ACH Debit the Best Option for Your Business? 

It isn’t a question of whether you should choose between ACH debit vs. credit. As a business owner, the important thing is what you’ll be using the payment for. Your choice will be defined by whether you are collecting or sending a payment. 

When ACH Debit Makes Sense

ACH debit payments are a good choice if your company is collecting recurring payments, such as gym memberships and subscription fees. While you’ll need to get customer authorization and there’s always a chance of NSF issues, this option offers useful benefits. You get to pull the payment on the date you set, and the fees are much lower than typical credit card transaction fees.

When ACH Credit Makes Sense

Businesses often use ACH credit payments for payroll, vendor payments, gig payouts, and tax refunds. Because the sender initiates the payment, you don’t have to worry about a vendor having insufficient funds.

While there are exceptions to this rule, the biggest difference between ACH credit and ACH debit is that ACH credit is generally used for payments your business sends. ACH debit is used for payments your business receives.

Which Type of ACH Payment Is Most Prone to Fraud?

When it comes to ACH fraud, ACH debit tends to have more issues. Because these payments are taken automatically after the customer provides authorization, fraudsters sometimes try to fake the authorization and pull money from the customer’s account. Additionally, customers are allowed to dispute charges for up to 60 days, which increases the ease and likelihood of chargebacks.

For merchants, ACH debit has a higher rate of NSF and returns. While it may not technically be fraud, there is also always a risk that the customer will revoke their authorization.

How Is an ACH Payment Different From a Wire Payment? 

While ACH and wire payments are both types of digital transfers, there are a few key differences between them. Wire payments are irreversible once they are sent and can be received in just a few minutes or hours. In order to achieve this faster settlement speed, wire payments use Fedwire or SWIFT instead of the ACH network.

However, wire payments are far more expensive than ACH payments. While ACH payments often cost $1 or less per transaction, wire payments can cost $15 to $35 each. Because of this, they are generally reserved for real estate purchases, high-dollar transactions, and international transfers.

Final Thoughts

When you operate in a digital environment, it’s essential to understand the difference between ACH credit vs. ACH debit. Ultimately, the biggest variation is how each payment is used and how it is removed from the account. While ACH credit is used for sending payments and is considered a “push” transaction, ACH debits are automatically pulled from accounts for pre-agreed charges.

As a business, you likely use both types of ACH payments. Because these payments are routed through the ACH network, they offer much lower fees than wires or traditional credit card payments. 

If you’re interested in learning more about ACH debit vs. credit, we can help. Reach out to our payment processing experts today to learn more.