ACH Debit vs ACH Credit – Difference and Comparison

What is ACH Credit?

The Automated Clearing House Network (ACH) is a U.S. banking network that allows payments to be “pushed” from one bank account to another (ACH network). Direct deposits, which may sound more familiar, are another term for ACH credits.

ACH credits are created when an employer pays its employees monthly by depositing electronic payments into their bank accounts. The money is sent to employee accounts by the employer. Every ACH payment is routed through the United States clearinghouse system, a network of financial institutions in the United States. The Federal Reserve is part of the network supervised by the National Automated Clearing House Association (NACHA.)

The ACH network is primarily used to send and receive domestic electronic payments between banks in the United States. Each individual or business must authorize the financial transfer. Following authorization, the originating financial institution either pushes cash out (ACH credit) or draws funds in (ACH debit) (an ACH debit.) These payments are grouped together and verified by a clearinghouse. The money is accessible for usage within two to five business days, but same-day ACH payments are becoming more prevalent. Businesses utilize ACH credits to deposit employee paychecks and benefits and make B2B ACH transfers to pay recurring expenses.

They also use them for one-time expenses, such as paying an accountant for tax preparation services once a year. Optional ACH debits are popular among businesses because they allow customers to “set it and forget it,” paying their monthly invoices automatically. ACH payment processing is simple, inexpensive, and convenient in both directions, whether sending or receiving payments.

What is ACH Debit?

ACH payments (automated clearinghouse) are computerized payments that take money directly from your checking account. The money goes automatically instead of writing a paper check or conducting a debit or credit card transaction. ACH might make life easier for you but can cause issues. Get to know the benefits and drawbacks so you know what to expect.

The national automated clearinghouse network connects all depository institutions in the United States, such as banks and credit unions. These institutions can use this network to set up electronic deposits and withdrawals into and out of their customers’ accounts. The payee will conduct an electronic withdrawal immediately from your account when you make an ACH debit payment from your bank account. No physical checks or debit cards are involved in this transaction; the payee requires your bank account and routing number.

ACH Debit payments require you to approve your biller, such as your electric provider, to withdraw funds from your bank account to process the payment. In most cases, this occurs after you have provided your bank account and routing numbers for your checking account and after you have given your authority by signing an agreement with your biller.

Difference Between ACH Credit and ACH Debit

  1. In the payment industry, ACH Debit refers to the automatic transaction procedure initiated or requested by the recipient and then transmitted to the payment operator. A different type of automated transaction procedure is known as ACH Credit, and it is the process that the operator initiates and then passed on to the finance company, which is responsible for making the payment to the receiver.
  2. In most cases, the ACH Debit is initiated by the person who will receive the funds. By contrast, the ACH Credit is initiated or led by the person who is sending the money to be deposited.
  3. ACH debits are also known as “pull transactions,” which refer to transactions that are initiated from a bank’s account. The ACH Credit, on the other hand, is also referred to as a ‘push transaction’ because the recipient initiates it.
  4. In most cases, there are generally no fees associated with the ACH Debit transaction process. However, the ACH Credit may also include a small amount of fee costs that were incurred during the transaction’s processing time.
  5. Transactions involving ACH Debits take a disproportionately long period, lasting more than three business days. The ACH Credit transaction, on the other hand, takes less time to complete. Depending on the operator, it may be possible to transfer it the same day or within one to two days.

Comparison Between ACH Credit and ACH Debit

Parameters of ComparisonACH CreditACH Debit
DefinitionAn ACH credit payment sends funds from the account holder’s bank to the recipient’s bank via the ACH network. The account holder initiates the payment and sends the funds.It’s a type of ACH transfer that takes money from a bank account. The payer (customer) authorizes the payee (merchant) to deduct payment from their account.
ExamplePaying an employee or a vendor directly is one example.With an ACH debit, an individual’s bank account is automatically debited monthly for a mortgage or utility bill.
Pull/PushACH Credit is “pushed”.ACH Debit is “pulled”.
FundingACH Credit is generally “pre-funded”.There is no such requirement as such for ACH Debit.
Fee ChargesACH Credit might include some amount of charges during the whole transaction process.Usually, ACH Debit does not include any transactions fee or charges in the process as such.

References

  1. https://www.chicagofed.org/~/media/others/research/papers/payments-studies-occasional-papers-series/eps-2001-3-pdf.pdf
  2. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2318092