ACH debit

ACH or Automated Clearing House is an American electronic financial network which helps to facilitate financial transactions. An ACH debit allows a company to draw funds from your bank account automatically, that is, if you authorise an ACH transfer, you do not need to write physical cheques. Amount is drawn only when you initiate the ACH debit. Only the specified amount is drawn, and same is done on the specified date.

What is ACH?

ACH debit allows a company to directly withdraw funds from your bank account. It works well when you receive certain goods, services or benefits for which you are liable to make periodic payments. For example, you can authorise your mortgage lender to withdraw the monthly repayment or you can authorise your electricity supply company to automatically debit your account every month, and so on. What is required to initiate an ACH debit? All you have to do is supply your bank’s Routing Transit Number (RTN) and your bank account number. Benefits An ACH debit (or ACH credit) makes life very convenient. You don’t have to go through the process of writing and giving cheques on dates which you may forget. All you have to do is authorise your creditor to pick up the payment from your bank account using ACH. ACH works very fast – funds are transferred in one business day. Charges Typically, your bank will not charge you for getting an ACH debit. However, when you authorise an ACH debit and do not have funds in your account, the bank may levy a penalty or charge an overdraft fee. Check with your bank about their ACH fee structure.

The case for ACH debits and credits, and its drawbacks

ACH debits and credits cut through the clutter and delays involved in the giving and taking and processing checks. One authorisation makes the receiving bank connect with the paying bank and the funds are transferred electronically. ACH processing is simple and helps the government and financial regulator save time and energy. As ACH cuts down on paper, it indirectly helps the environment. Besides, people are benefited as well as their financial transactions are now automatic and so that they can focus more on revenue generation than transaction management. Drawbacks If you do not hold a sufficient balance, then ACH debits may work to your disadvantage. Moreover, you must keep a tab on the ACH payments – if you authorise too many transactions, then keeping a tab on them may be cumbersome. What are ACH credits? Credits received automatically based on authorisation are termed as ACH credits. For example, payroll direct deposit can be an ACH credit. Your employer will ask his bank to transfer your salary to your account every payday.