The PaymentVision Blog

Understanding ACH Settlement Time

Understanding ACH Settlement Time

When you receive your paycheck via direct deposit, transfer money between bank accounts, or schedule a recurring payment from your bank account, your money passes through the Automated Clearing House Network, or ACH. The service processes roughly 24 billion transactions every year and moves over $41 trillion between accounts.

What is ACH?

Rather than use paper, everything is handled electronically. ACH is essentially a batch processing system  transactions are accumulated then processed later in bulk. There are two types of ACH transactions. The first is Direct Deposit. This is used in payroll as well as the payment of government benefits, interest, and annuities. The second is Direct Payment via ACH. If you use your bank’s bill paying services or set up a recurring payment with your utility company, the payment is processed this way.

What is ACH Settlement Time?

Payments processed through ACH payment processing are not immediate. While ACH is faster than it would be if it were paper-based, transferring funds between banks using this method still takes time. The batches in which ACH transactions are processed get ran only three times a day and only on business days. Financial institutions have the ability to choose their processing time. It varies from same-day delivery to two days. However, that’s not the end of the story. You bank could choose to place your transferred funds on a hold. All told, this can make ACH settlement take several days.

Why Processing Time Matters

Understanding ACH settlement times are important because while the funds are transferring, you don’t have any access to that money. For an individual expecting a paycheck or making a payment, the settlement time is an inconvenience, but for a business, it has much more importance. Remember, you may have many ACH transfers processing at once. Understanding when that money should clear will help you better plan your cash flow.

What is Same Day ACH?

The ACH has been working for years to move payments faster. The system was established in the 1970’s and it has been evolving ever since. In March 2018, the processing system introduced the option of same-day ACH payment processing. “Virtually all types of ACH payments, including both credits and debits, are eligible for same-day processing,” explains NACHA. “Only international transactions (IATs) and high-value transactions above $25,000 are not eligible. Eligible transactions account for approximately 99 percent of current ACH Network volume.” Some primary uses of same-day ACH include same-day payrolls, business-to-business payments, and expedited bill payments.

Benefits of Improved ACH Settlement Time

Having faster ACH settlement times comes with a variety of benefits. It eliminates the cost of paper checks and it is less expensive than other payment methods. Plus, when you use a real-time processing gateway, it reduces potential errors and fraud. Faster ACH payment processing can also help you streamline your operations by simplifying receivables and letting you accept payments almost immediately.

ACH lets you accept and make payments directly from one account to another, but it takes time to process. Some of the delay is due to the way ACH payments are processed in bulk, some of it is due to the holding period many financial institutions place on the funds they receive. In any case, ACH payment processing takes several business days, but you do have the option to choose faster ACH processing.

Improved ACH settlement time has important benefits. Contact PaymentVision to learn how quick ACH could benefit your business. We can help you evaluate your ACH payment processing options.