What Is an ACH Account?

Banks handle an increasing amount of ACH transactions.

More and more companies are switching to automated clearing house (ACH) accounts to handle payments and other transactions. These accounts offer a faster, cheaper and more accurate method of collecting and sending payments, eliminating much of the paperwork.

Significance

An ACH account provides a way for businesses and other organizations to receive funds electronically. Businesses can open ACH accounts after verification and all transactions in an ACH account provide all the financial details needed for the company's accounting records. ACH accounts give companies an easy way to collect payments.

Function

When a customer requests a payment to an ACH account, their financial institution gathers all the required information such as the payment time, account number and destination financial institution. Multiple payments are lumped into bulk batches and sent to the receiving financial institutions, who can then record the transactions into their business accounts.

Types

Companies and other organizations can have both receiving ACH accounts to collect payments from customers as well as sending ACH accounts to handle transactions with other businesses, payroll or other payments. ACH accounts can include checking and saving accounts and companies can direct ACH transactions into their loan or general ledger accounts.

References

• Electronic Funds Corporation: Introduction to ACH
• Deposit Accounts: How ACH Transfers Work