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ACH Payment Processing: Why Do They Take So Long for Transfer?

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ACH Payment Processing: Why Do They Take So Long for Transfer?

Automatic Clearing House or commonly known as ACH payment is the most commonly used payment method throughout the USA. Billions of Automatic Clearing House payments are sent throughout the USA annually. Just to give an idea as to how commonly ACH is used throughout the USA:

  • Over 26.8 billion ACH payments were processed in the USA in 2020
  • The total amount from those payments reached $16.9 trillion in value

With most of the USA financial industry relying on ACH payments, the service has to be fast, secure, and flexible. Unfortunately, unlike third-party payment apps (PayPal), ACH isn’t instantaneous. Every single payment that’s sent and received there’s some delay. Most of the time ACH payments take anywhere between 3 days to a week. What’s the reason behind the delay of a commonly used payment method?

ACH Payment Processing 

Before figuring out the reason behind the delay of ACH payments, let’s dive deeper into the nature of ACH payments. ACH payments are processed through an intricate and long tunnel of approvals, codes, and regulating entities. This tunnel is commonly referred to as “ACH Network”, this network takes up the responsibilities of sending money throughout the US using ACH. 

The first step in initiating the ACH payment is to use an approved bank, in pure financial terms this bank is known as “Originating Depository Financial Institution (ODFI). The recipient of the money must use a “Receiving Depository Financial Institution (RDFI)”.

The checks and balances in place along the ACH Network make the process reliable, secure, and the best method of payment in the USA. These checks and an additional layer of security are what make the payment process slow compared to others. 

The ODFI has to approve every single payment that is sent, once approved, the payment is sent to the Federal Reserve and the Clearing House before reaching the recipient’s bank account. There are situations when the payment is rejected, and the payment entry would issue a return code. This payment code must be sent to ODFI and the originator of the payment. The next step is to rectify the issue which caused the payment to be rejected in the first place. The RDFI has 48 hours to issue the return codes, this also adds time to the ACH Payment Processing. 

As there are so many individuals, entities, and steps involved, the payment processing time can vary from as little as 3 business days to as much as a week. In some specific situations, the payment processing time can even take more than a week. 

ACH Payment Transfer Times

ACH payment transfer times depend mostly on when the sender’s financial institution processes ACH payment batches if they facilitate same-day ACH payments and a bank holiday. The ACH payments also require businesses to verify the users using bank verification software.

1. Timelines for ACH Debits

ACH debits as the name suggests is a process when money is taken out of the bank of the originator. The standard ACH debit takes 3-4 business days (banking days). This simply means that by the end of the fourth business day, the amount should be debited from the originator’s account. If due to some error, that doesn’t happen, then a return code would have been issued. 

This timeline is made carefully so the RDFI has the time to issue the return code (around 48 hours since payment was initiated). Here’s a basic idea of how the process looks:

  • On Monday: A user requests an ACH debit
  • Tuesday: Funds are debited from the bank on Tuesday morning
  • Wednesday: The RDFI has until Thursday morning (48 hours) to issue return codes. 
  • Thursday: If there aren’t any return codes, the funds are credited by Thursday evening. 

2. Timeline for ACH Credits

An ACH credit is whenever money is sent into the account of the originator. In this situation, the time taken for ACH payment processing is also 3-4 business days. The delay in payment is also due to some factors including return codes, customer verification, bank holidays, and whether the bank uses same-day transfers.

3. Same Day ACH Transactions

In 2016, Nacha, the National Automatic Clearing House Association or the governing body that controls the ACH network and their guidelines, released a new type of ACH transfers called “Same-Day ACH Transfers or Expedited ACH Transfers”. Same-day ACH transfers were introduced because of the sudden increase in demand for ACH transfers, and it allows faster payments for legitimate customers. 

Same-day ACH transactions allow the financial institution two-time slots for submitting an ACH payment. This allows banks to offer more ACH Payment results several times during the day. Ultimately, with this method, ACH payments may take just 1 or 2 days. There are chances for the payment to be processed even faster. If this one-day ACH payment method can be standardized throughout the USA, the demand for ACH Payments will increase drastically. 

As of right now, ODFIs submit same-day ACH payments through two clearing windows:

  • 10:30 AM ET, with payment settlement happening at 1 PM.
  • 2:45 PM ET, with payment settlement happening at 5 PM.

For same-day payments to be successful, the RDFIs have to deposit funds by 5 PM on the RDFI’s local time. Simply put, almost all ACH transactions are eligible for same-day processing. International payments over $25,000 aren’t eligible for same-day payment processing. 

Payment Transfer Times

Obviously, ACH isn’t the only payment processing method available in the USA. And for many peer-to-peer (P2P) money transfers, it isn’t possible for ACH to be initiated without a specialty app. For several official money transfers, like with government officials, banks, and entities like the IRS and for your wages, ACH is the common method used. Fortunately, payment originators are less likely to experience delays while working with groups like these. 

There are situations where you can’t jump ahead of the ACH payment processing times. In case you need instant payment done, there are alternative methods available such as digital wallets, cryptocurrency, and payment transfer apps.

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