What Is an ACH Payment Method and How to Use It?

With how dangerous the digital world has grown over the years, reliable payment methods aren’t just nice to have; they’re a must. One such method is ACH transactions, a highly secure way to move funds between accounts.

But what is an ACH payment method, and how to use it? Read on to find out! In this article, we’ll discuss the following questions: how does the ACH payment method work, what its benefits and drawbacks are, and how to process it correctly.

What Is an ACH Payment Method?

Let’s start with the ACH payment method meaning and why this financial solution is so widely adopted.

ACH (Automated Clearing House) transactions are electronic bank-to-bank payments that don't use a card or a paper check. This system dates back to the 1970s, when U.S. banks envisioned a nationwide network that would allow them to get rid of slow pen-and-paper processing. Today’s ACH network is a nationwide system that batches, routes, and settles transactions, universally praised for its low fees, strong security, and good processing speed.

It has become a go-to solution for everything: paying bills, covering subscriptions, making online purchases, and more. ACH transaction volume has grown significantly since its inception, and now the system handles tens of billions of transactions annually, from payroll deposits to B2B payments. Also, B2B ACH transfers increased 10% in Q3 2025, making up a significant share of the network’s total transaction volume.

What Are the Types of ACH Payments

There are two types of ACH payment, direct deposits and payments, differentiated by the party that initiates the transfer. Put simply, these are credits and debits: you either receive or send money.

ACH Credit Transactions

To receive an ACH deposit, you must provide the sender with your bank name and both routing and account numbers. Once the payment is sent and processed, it will show up as a credit in your account, with the sender’s name and the transfer amount appearing in your transaction history.

This type of ACH transfer is used for:

• Payroll, including salaries, commissions, and bonuses;
• Employee reimbursements;
• Tax refunds;
• Social Security and unemployment benefits.

ACH Debit Transactions

To send an ACH payment, enter the recipient’s routing number, account number, and account type as prompted, whether you’re using your bank’s website, a payment app, or a payroll system. Once submitted, the transfer will appear as a debit with the transaction amount and the recipient's name attached.

Popular ACH debit use cases include:

• Monthly bills (utilities, internet, etc.);
• Subscriptions;
• Direct debit for taxes;
• Loan or mortgage payments;
• Automatic charitable donations.

How to Use the ACH Payment Method

The three key entities responsible for the ACH payment process are National Automated Clearing House Association (Nacha), Originating Depository Financial Institution (ODFI), and Receiving Depository Financial Institution (RDFI).

Nacha is a government-run, nonpartisan organization responsible for operating the ACH network. It sets the rules, standards, and guidelines for this transfer method. ODFI is the financial institution that initiates ACH operations and handles all the essential details involved, such as transaction type (credit or debit), routing and account numbers, and transfer amount. ODFI then sends the info to the RDFI, which receives the ACH transfer request. Both verify that the originating account has enough funds. If the verification succeeds, the transaction proceeds, and funds are transferred to the destination account.

Pros of ACH Transfers

ACH wire payment may not be the flashiest way to handle money, but it is one of the most dependable ones. Whether you’re paying employees, settling bills, or managing subscriptions, ACH is worth considering because it is:

• Cost-effective. Cheaper than card payments or wire transfers, ACH can help businesses and individuals save a lot of money in the long run.
• Reliable and safe. Transactions are backed by strict network rules and bank-level security.
• Great for automation. Perfect for recurring payments like payrolls, bills, and subscriptions. Once set up, the transfers will be done automatically, cutting manual work, eliminating errors, and keeping payments on time.
• Widely accepted. ACH is supported by banks, billing tools, and fintech apps, making it flexible and accessible.
• Good for cash flow. Predictable settlement times allow businesses to improve their planning. Knowing for sure when funds will arrive or be debited is a considerable advantage.

ACH transfers are a great fit for companies looking to automate payments while still keeping them reliable and cost-effective. They work particularly well for businesses that charge regular payments or fees for services like subscriptions, memberships, rent, or invoices. They are also beneficial for e-commerce and SaaS companies looking to avoid high credit/debit card fees. Besides, nonprofits can take advantage of lower donation processing costs, while landlords will surely benefit from predictable monthly payments.

Cons of ACH Transfers

Now let’s turn to the less rosy side and discuss the key downsides of the ACH payment method:

• Payment speed. Same-day ACH transfers are relatively fast, but standard payments take one to three business days, or even more on holidays and weekends. Still, Nacha reports that 80% of ACH payments settle within one banking day or less.
• Can be reversed. Unlike credit card or wire transfers, ACH payments can be reversed. This is great for consumers, but poses more risk for businesses.
• Limited cross-border transactions. ACH mainly works within the U.S., and so can’t really handle international transfers.

Setting Up an ACH Transfer

If you are looking for how to use the ACH payment method and set up a transfer correctly, you’re in the right place. Here’s what you’ll need to do:

1. Gather the right details

The information you’ll need to provide includes:

• The account holder’s name and number.
• The routing number.
• The type of account (checking or savings).

Double-check everything, as even a small typo can delay the transaction.

2. Start the transfer through your bank

Log in to your bank’s website or mobile app, locate ACH payments, and enter the recipient’s details. Your bank may ask for ID or one-time code verification.

3. Stay protected

Banks use encryption, multi-factor authentication, and monitoring tools to safeguard their clients. Still, you should double-check all the transaction details, never send money to recipients you don’t know personally, and use only trusted banking apps or websites.

Conclusion

ACH transfers may not be as fast as instant payment apps, but they get the job done. From payroll to rent, they keep recurring transactions running smoothly, safely, and reliably. Therefore, if you know how they work and follow your bank’s policies, ACH will become a handy, trustworthy tool in your financial arsenal.