Complete Guide ACH Transaction
ACH transactions are classified as either credits or debits, depending on which account is being debited or credited. The six most common types of ACH transactions are:
- Preauthorized Credits: These credits occur when a payer authorises a payee to debit their account for a specified amount and frequency. Examples of preauthorized credits include direct deposit of payroll, social security benefits, and pension payments.
- Pre Authorised Debits: These debits are similar to preauthorized credits, but the funds are transferred from the payee’s account to the payer’s account. An example of a pre authorised debit is an automatic bill payment for a monthly gym membership.
- Point-of-Purchase (POP) Credits: These credits occur when a payer uses their checking account to make a purchase from a payee who has been authorised to initiate ACH transactions. An example of a POP credit is an online purchase made with a debit card.
- Point-of-Purchase (POP) Debits: These debits are similar to POP credits, but the funds are transferred from the payee’s account to the payer’s account. An example of a POP debit is a purchase made with a credit card.
- Telephone-Initiated Credits: These credits occur when a payer provides their checking account information to a payee over the phone and authorises the payee to initiate an ACH transaction. An example of a telephone-initiated credit is a utility bill that is paid by phone using a debit card.
- Telephone-Initiated Debits: These debits are similar to telephone-initiated credits, but the funds are transferred from the payee’s account to the payer’s account. An example of a telephone-initiated debit is a phone payment made with a credit card.
ACH transactions can also be classified as either single entries or batches. Single entry transactions are processed individually and typically take one to two days to settle. Batch transactions are processed in groups, or batches, and can take up to four days to settle.
Benefits of ACH Transactions : There are a number of benefits associated with ACH transactions, for both payers and payees.
Payers benefit from ACH transactions because they:
- Can save time by authorising transactions in advance
- Have greater control over their finances
- Can avoid late payments and associated fees
- Can earn interest on their account balance
Payees benefit from ACH transactions because they:
- Receive payments more quickly
- Have a record of all payments made
- Avoided the cost of processing paper checks
How to Set Up an ACH Transaction
There are a few steps that must be completed in order to set up an ACH transaction.
- The payer and payee must have a checking account with a financial institution that offers ACH services.
- The payer must provide the payee with their routing
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