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October 22, 2020

Q: What are ACH Transfers and How Do They Work?

ACH transfers are a secure electronic way to move money between bank accounts.

Ask Liquid: What are ACH Transfers and How Do They Work?

Compliance Ask Liquid Finance and Accounting

ACH transfers allow you to securely and conveniently move money electronically between accounts at different banks. You have probably used ACH transfers, even if you don’t realize it. For example, if you’re paid via direct deposit that’s a form of ACH transfer. Paying bills online through your bank account is another example of an ACH transfer. Business owners can also use ACH to pay vendors or receive payments from clients and customers. 

ACH transfers are usually more cost-efficient and user-friendly than writing checks or paying with a credit or debit card. Here’s how ACH transfers work.

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What are ACH Transfers?

An ACH transfer is an electronic, bank-to-bank money transfer that is  processed through the Automated Clearing House Network — a batch processing system that banks and financial institutions use to aggregate ACH transactions for processing. This batch processing typically happens three times each business day. The ACH network processes two kinds of ACH transactions: direct deposits and direct payments.

ACH Direct Deposits

ACH direct deposits are any kind of electronic transfer made from a business or government entity to individuals. The kinds of payments that fit in this category include direct deposits of paychecks, government benefits, and tax refunds. With ACH direct deposits, you’re receiving money. When you send money via ACH, you’re making an ACH direct payment. As a vendor on Liquid, you receive your payments via ACH.

ACH Direct Payments

ACH Direct payments can be used by individuals, businesses, and other organizations to send money. If you’re paying a bill online with your bank account, for example, that’s an ACH direct payment. In an ACH direct-payment transaction, the person sending the money sees an ACH debit appear in his or her bank account while the person or entity receiving the money registers it in his or her bank account as an ACH credit. As a Liquid user, you can send payments to your vendors via ACH with just a $3 transaction fee per invoice for domestic (US) vendors or a $8 transaction fee per invoice for international vendors. When paying domestic vendors on Liquid, you also have the option to use a credit card for payments with a 5% transaction fee.

Advantages to using ACH Transfers

Using ACH to pay vendors, suppliers, freelancers, and other bills — or even person-to-person transactions — has many advantages. 

ACH Transfers are Convenient 

Paying your bills via ACH is usually easier and less time-consuming than writing and mailing a check — and you save yourself the cost of stamps.  No more hand writing checks, addressing envelopes, affixing a stamp, and hoping your check arrives at its destination safely.

ACH Transfers are Quick

Sending ACH payments are typically pretty quick. ACH transfers usually settle at their destination within 2-5 business days. That said, not every bank sends their ACH transfer for bank processing at the same time. There may be a cutoff time by which you need to get your transfer in to have it processed for the next business day — and initiating an ACH transfer after the cutoff could result in a delay, which may be an issue if you’re trying to make a payment on a due date to avoid a late fee.

ACH Transfers are Secure

In addition, an ACH payment can be more secure than other forms of payment. Whereas checks can get lost in the mail — or worse, stolen — you can count on ACH transactions to complete, assuming the sending bank account has enough funds!

ACH Transfers are Cost Effective

Compared to a bank wire transfer, which typically has steep fees of up to $75 per transaction, ACH transfers are much more cost-efficient. Yes, wire transfers are typically quicker, but the difference in cost between wire transfers and ACH transfers usually makes ACH transfers the best choice for most payments. 

The Bottom Line about ACH Transfers

ACH transfers are a hassle-free way to send money or receive money — and they are a secure and convenient way to pay your vendors, suppliers, and freelancers. As a Liquid user, you can send payments to your vendors via ACH with just a $3 transaction fee per invoice for domestic (US) vendors or an $8 transaction fee per invoice for international vendors.

Ready to pay your vendors, freelancers, and suppliers? Try Liquid today

Category: Compliance Ask Liquid Finance and Accounting

Updated: October 22, 2020

Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.

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