ACH Payments: What They Are and How They Work

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Reviewed by Matt Pelkey
• 5 minute read
Business man on laptop

It’s rare to make a payment with a paper check today. With the invention of new payment methods and technologies, using checks seems slow and many businesses need to move faster than ever. Instead, you may use a debit card or a business credit card for quick payments.

However, ACH payment processing has also become popular.

ACH payments are designed to make things quick and easy. The money is taken straight from your bank account, which allows for same-day, direct payments between two parties. One of the many benefits of ACH payments is simplifying small business loan payments for borrowers.

What Is an ACH Payment?

The Automated Clearing House Network (ACH) is used for processing electronic credit and debit transactions in the United States. This network is governed by the non-profit National Automated Clearing House Association (NACHA) and is overseen by the Federal Reserve.

An ACH debit wire transfer occurs when you explicitly allow a third party (vendor, merchant or lender) to have direct access to your business checking account to withdraw the funds you owe. This is different from using a debit card, which does not allow the third party direct access to your account.

Roughly 90% of all electronic payments are handled through the ACH network, including direct deposits and most likely your credit card payment, mortgage payment or automobile payment.

Most lenders, including online lenders like OnDeck, prefer to accept business loan payments through an ACH electronic funds transfer (EFT) directly. OnDeck term loans come with either a fixed daily (every business day) or weekly ACH payment. Repayment for a line of credit is automatically deducted on a weekly basis. While some lenders still accept payment by check, electronic payments have become increasingly common — particularly with online lenders.

Types of ACH Payments

There are two types of ACH payments — an ACH credit and an ACH debit. The main difference between these two is who is asking the ACH Network to initiate the money transfer.

An ACH credit pushes money into someone’s account. This means the payer is asking the network to transfer the money. An example would be giving your employees their paychecks via direct deposit.

An ACH debit on the other hand, pulls money from the payer’s account. This means that the lender is requesting the money transfer. An example would be a business-to-business transaction, like a borrower repaying a small business loan.

Benefits of ACH Payments for Business Loans

Benefits of ACH payments for the borrower include:

  • ACH payments can be more cost-effective. Writing checks, paying for processing fees and postage all take time or money. Using ACH payments can reduce your costs and save you time.
  • It’s more convenient than writing a check, particularly if the ACH debits are automatic and scheduled.
  • The timely and recurring payments help build and maintain a strong business credit profile.
  • Daily or weekly debits (as opposed to a monthly debit) reduce the size of each payment. This makes it easier for many borrowers to smooth their cash flow and avoid having large expenses all due at once.
  • This type of electronic direct debit makes capital available to some borrowers who might not qualify with a more traditional payment model. This is because an ACH payment helps mitigate the risk of missing payments.

Tips for Using ACH Payments for Business Loan Repayment

Millions of ACH transactions happen every day. Here’s what you need to keep in mind to ensure that they can work for your business.

  • Cash flow. Make sure your cash flow can accommodate the periodic payment frequency. If most of your monthly revenue is from a handful of customers that make payments at the end of every month, a daily or weekly ACH transfer from your business bank account might not work for you. This is one reason online lenders may want to see your last three or four months of bank statements. They want to make sure your cash flow gives you sufficient funds throughout the period to cover the withdrawals.
  • Payment process. Before signing an agreement, make sure you understand your payment options. How much will be pulled with every payment? Be sure to include any processing fees that may be associated with the money transfer. You’ll also want to determine if payments are made only on business days or if they’ll be taken on weekends and holidays as well.
  • Details. When using ACH payments to repay a loan, make sure you understand the contract details. For example, what happens if you have insufficient funds? What are the processing times or is it a same-day ACH payment? Who’s the payment processor? What happens if there’s a mistake? These details can help business owners be more prepared to manage their repayment and their finances.

How To Set Up ACH Payments With Your Small Business Lender

If you want to set up ACH transfers to repay your small business loan, or if you want to use ACH for other bill payments, you’ll need to provide some information to get started.

The financial institution will need some account information to set up your ACH payments. This will most likely include your business’s bank account and routing numbers. With this information, you should be able to start making payments through bank transfers.


This content is for educational and informational purposes only, and is not intended as financial, investment or legal advice.