What is ACH?

ACH is a network used for electronically transferring funds between U.S. bank accounts. Established in the 1970s, the ACH network enables you to digitally move funds between your own bank account and a vendor or employee bank account.

Trillions of dollars route through ACH each year, including PayPal, Venmo, and Zelle®* transactions. In fact, 2020 was a record year with nearly 27 billion ACH payments, which averages about 81 payments per U.S. citizen. 

How does ACH work?

There are two types of ACH payments: credit and debit.

ACH credit

With an ACH credit, also known as a direct deposit, you “push” funds from your bank account into an employee’s or vendor’s bank account. The payer initiates the transaction. It takes three steps: 

  • Step 1: Obtain the vendor or employee’s name, bank name, account type, account number, and bank routing number.
  • Step 2: Submit payment details through Wells Fargo Business Online® or Commercial Electronic Office® (CEO®) ACH that includes the account information and payment amount.
  • Step 3: The funds are transferred from your account on the designated date.

For recurring payments, such as payroll, rent, or mortgage, you can set up automated ACH credits.  

ACH debit

For an ACH debit, also known as a direct payment, money is “pulled” from one account to another. With the payer’s permission, the recipient initiates the transaction to withdraw funds from the payer’s account. The payer provides the recipient the same banking information as listed in Step 1 above. The recipient submits the payment file to their bank and pulls funds from your bank account. 

For example, you might set up automated ACH debit for your utility bills, which arrive monthly but vary in cost each month.  

How can I use ACH?

Direct deposit of payroll is one of the more familiar uses for ACH payments. It’s how 93 percent of American workers get paid. But ACH has other useful applications for small businesses, too. For example, you can use ACH for:

  • Employee payments, such as reimbursed travel expenses or 401(k) contributions.
  • Vendor payments, including those for suppliers, rent, or utilities.
  • Government payments, such as tax payments and refunds, Social Security payments, and stimulus payments.
  • Investment dividend and interest payments.

What are the advantages of ACH?

There are several advantages for your small business in using ACH payments. 

Cost savings: ACH payments are less expensive compared to paper checks, credit card transactions, and wire transfers.  

Convenience: You will no longer need to take time printing, signing, and mailing paper checks, and making runs to the post office or bank. You can make ACH transactions from your office or while working remotely at home. The automated process makes it easy to schedule recurring payments, so there’s no need to set a calendar reminder or keep track of paper invoices for these standard charges. 

Faster processing times: ACH payments can process as quickly as the same day or up to three days. That fast turnaround can help with your cash flow and let you know sooner if a payment from a vendor is declined. 

Security: ACH payments eliminate the need to mail paper checks, which are vulnerable to fraud. Your personal and account data are encrypted with each ACH transaction, for your protection. If there are any ACH errors, there are rules and regulations in place to help protect you.  

Consistency: By scheduling recurring ACH payments,you’re creating a more consistent cash flow that’s easier to forecast.

How do I get started making this type of transaction?

It’s easy to establish ACH payments for your small business. 

Talk to your banker today to find out how to set up ACH payments. Your banker can provide information on enrollment, limits, fees and more.

You can also reach out to set up an appointment or connect with a Wells Fargo Business Banking Advisory Specialist by calling 1-844-807-5060.

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