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The Helcim Blog / Merchant Guides

ACH Credit vs ACH Debit

Ryleigh Stangness | May 31, 2022

“We explore what ACH debit and credit transactions are, how they work, and the differences between them.”

6 min read

They taught us a lot of things we never really retained in high school. After all, how many times in our week do we need to know what a dangling participle is? Some things were useful, of course, like when the professor explained the differences between credits and debits. A credit is when your bank balance goes up, and a debit is when it goes down. Easy enough.

But, now that you are looking into setting up ACH payments for your business, you’ve heard terms like ACH Credit vs. ACH Debit, and suddenly the old explanation doesn’t quite cover it.

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Looking to get paid by vendors and customers? You’ll be looking for ACH credit payments, which we offer at no extra cost other than the processing fee at Helcim. ACH bank payments are a cheaper alternative to processing credit cards and are faster than traditional paper checks. At Helcim, we offer transparent Interchange Plus rates for ACH credit, so the savings is passed onto your business.

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ACH – What's that about?

You might think the Automated Clearing House (ACH) network is what makes the difference. Maybe it’s so new and innovative that it changed what credit and debit mean since you took that one class. Well, the ACH was new technology – in the 1970s. Why? In the ‘70s, as the world embraced orange floral corduroy bell bottoms, the banking system was tired of processing paper checks. Thus, they created the ACH, even though you can still find a few paper checks in the world 50 years later.

The ACH network is now the primary way money is moved in and out of personal accounts. Electronically. And since it is money, there are still credits and debits – but both credits and debits take on a whole new meaning when dealing with the ACH.

What’s an ACH Credit?

If you see an ACH electronic credit in your bank account, the balance increases. Almost like magic because you didn’t initiate the transfer. Instead of giving you a paper paycheck, your employer might “push” an ACH transfer into your account. The government could deposit your tax refund as an ACH credit. Your company could send money to a vendor to pay the bill for the inventory. You initiate an ACH electronic credit when you set up a payee in your bank account to pay your cell phone bill. ACH credit transfers work well to receive B2B payments, tax refunds, get your pension, or your salary. You initiate an ACH credit transfer whenever you input your banking information into a website or pass these details onto vendors or businesses. If you use a banking app, you also have to input the recipient’s banking details.

ACH credit transfers are electronic, but they are not instantaneous. After your employer “pushes” your paycheck through the ACH system, it typically takes up to three business days to show up in your bank account. The time required for an ACH credit transaction varies depending on:

  • Your bank (sender or recipient)
  • The other guy’s bank (sender or recipient)
  • What time you (or they) initiated the transfer – later in the day can count as an extra day

How much do ACH Credit Transfers cost?

A lot of ACH credit transfers are entirely free, but you may have to pay some fees depending on:

  • Your bank (sender or recipient)
  • The other guy’s bank (sender or recipient)
  • Any third-party services facilitating the transfer between your banks

Even when ACH credit payments aren’t free, they are minimal, especially compared to wire transfers costing upwards of $30.
Choosing the right bank can reduce your costs and how long transfers take. Choose carefully. To summarize, ACH credit transfers are initiated by the sender as a “push” payment to the recipient’s account. Think of it as a credit in the recipient’s account, so your professor was right after all.

What is a Bank ACH Debit?

Your professor taught that a debit is when your bank balance goes down – but is it that same for an ACH debit? If an ACH credit “pushes” money into your account, then an ACH debit “pulls” money out of your account.

For example, when you filled out that online auto-debit form with the cell phone company, you authorized an ACH bank debit. Now, every month when your cell phone bill is due, the company automatically debits your account for the amount of your bill. The key benefit to ACH debit payment is about the automatic part. You can never be late because the cell phone company takes the payment – and they never forget! Utility companies and other companies with recurring payments love ACH debit payments because of the marked reduction in failed and late payments.

Again, your professor was right about the definition of debit. When the cell phone company “pulls” your payment from your account, your balance goes down. ACH Debit vs. ACH Credit So, the definitions of debit and credit don’t really change when we add the ACH into the mix. Once you understand the meaning of ACH debit vs ACH credit, the mystery clears up. Mostly, you need to be clear about these three things:

  • Who initiated the ACH transfer
  • Why they initiated the funds transfer
  • How they initiated the transaction

Who Initiated the Transfer

ACH Credit – If the sender initiates the transfer – “pushing” funds into your account – it’s an ACH credit, and your bank balance goes up.

ACH Debit – If the recipient initiates the transfer – “pulling” funds out of your account – it’s an ACH debit, and your bank balance goes down.

Why they initiated the funds transfer

ACH Credit – The sender initiates the transfer for things like paying a bill or making a purchase. You’ll see an ACH Credit on your bank statement when you get your pension, or paycheck, automatically deposited into your account. ACH Debit – You authorized a vendor, like a utility company or the company that sells you inventory, to automatically “pull” funds out of your account to pay your bill.

How they initiated the transaction

ACH Credit – The sender initiates the ACH credit transfer to send money to the recipient. ACH Debit – The recipient initiates the ACH debit payment to take money from the sender.

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In Summary

To reiterate the differences between ACH credit and ACH debit, here are a few tips:

  • ACH Credit – Your bank balance goes up when someone else “pushes” you the money they owe you.
  • ACH Debit – Your bank balance goes down when someone “pulls” money out of your account because you owe them money.

Well, there’s a little more to it than that, but at least that gets the meaning of the ACH debit vs. ACH credit part straight. It works the same way for individuals and companies. ACH debit is what allows you to automate your payments, such as your gym membership, dog food delivery subscription, or even your rent. If you’re looking to automate your incoming payments from customers or vendors for your business or even set up your paycheck to automatically depcosit to your bank account, ask your payment company or bank about ACH credit payments.

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