Why ACH Settlements Matter

The 2016 AP Now’s Payment Survey showed that 83% of businesses in the US use ACH for payments. Moreover, consumers received around 5.8 billion direct deposits for payroll and tax refunds in 2015, according to Nacha. With these data, it is not surprising that ACH network volume will soar this 2021 with strong growth in B2B payments.

ACH settlement is the process of updating all parties’ bank accounts to reflect a processed transaction. It typically occurs one business day after the ACH network posted a transaction. In this regard, improving settlement timeframes entail several benefits such as fraud reduction and faster transactions.

The standard settlement time is three business days. However, money can tie up for an extra two days before it can be used again—which is not ideal when making a large payment or if consumers need it immediately. Read further to know more about the importance of an improved ACH settlement timeframe.

What is ACH transfer, and why is it important?

The Automated Clearing House Network is a network used by banks to process electronic transactions. It is a payment method they use to send money between themselves. It means that if one bank receives funds from another, it will go through the ACH system. 

Companies utilize this, too, to transfer payroll or payments for goods and services, like utility bills. When someone uses an online service like PayPal, they are essentially using the ACH system.

ACH settlement is important because it helps move money around the country faster than checks or wire transfers, taking several days to complete one transaction. It has become even more prevalent with the increase in online transactions and digital payments. Moreover, it saves on processing costs for companies.

It is essential to understand ACH because it helps businesses and individuals send money more efficiently than other methods, such as checks or wire transfers. It also has a lower cost of processing for companies than some other payment types like credit cards or PayPal transactions.

The Benefits of Improved ACH Settlement Timeframes

The benefits to businesses and consumers are already being seen today, with faster processing time. One example is payroll payment, which employees can now receive within one business day instead of two or three days like it was before. Direct deposit of social security and government benefits also reach the payee within one to two days.

Improved ACH settlement timeframes mean that customers can enjoy a better experience with online shopping. With improved speed for electronic transactions, more people will adopt e-commerce due to increased approval rates and easier access to an even greater range of products.

Here are the benefits of improved ACH settlements period:

Reduction of Risk Management Fees

The last stage of the ACH process is when financial institutions review and authorize or reject transactions. It involves a risk management approval, an analytical decision on whether or not to accept particular transactions for settlement at that time, as well as general authorization procedures. 

Now that this has been done automatically through an electronic batch file, many banks reduce their risk management fees.

Fraud Reduction

With the improved ACH process of faster settlement timeframes, fraud is also reduced due to more information for verification through electronic transactions (64% less fraud than debit card payments). The quicker processing times reduce false declines and increase approvals.

Faster Transactions

You can get paid faster by receiving money sooner through ACH instead of waiting 3-5 days for a check to clear. It is also a great opportunity to get paid if you work as an independent contractor or for a company that takes payroll straight away.

Paying bills is more efficient and cheaper with ACH transfers than writing checks, especially when there are minimum amounts involved – so it can be used by companies of all sizes, not just small businesses.

Lower Fees

Due to the improved ACH process, banks are reducing their risk management and analytical approval processes. It results in savings for businesses with reduced credit card fees. 

Moreover, when you receive payment electronically, there is no need for checks and paper currency, which means lower processing fees and less hassle when it comes time to deposit the money into your account. 

Risk Reduction

Checks have been known to be a source of fraud and loss. It can be stolen, misplaced, or lost in the mail, which often leads to a significant amount of time spent figuring out where that money went. With ACH settlements, there is no risk of mishandling payments or delays because all transactions are electronic.

Improved Data Accuracy

Faster processing means that there is also more time available to perform accurate account reconciliations between financial institutions. The quicker settlement timeframe reduces float, and this means better data accuracy.

Improved Customer Experience

Faster transaction times mean improved customer experiences. Improvements in the ACH process of more rapid settlement timeframes include payroll and e-commerce transactions which customers can receive within one business day instead of two or three days like it was before.


ACH settlement period is a critical component of cash flow management. Ensure that your payment processors have options to reduce the time and make your accounts receivable more streamlined. 

Want to talk more about payments, especially for your e-commerce business? Book a time with me at: https://calendly.com/jayant-eproxim/linkedin.

Jayant Chaudhary

Jayant Chaudhary

Running a business is an uphill climb.

Sometimes you're on a smooth, easy path, other times you hit obstacles that hinder your progress. And just like successful rock climbers, you need the right tools and expertise to reach the summit.

That means setting your business up for success by being prepared of what's to come. By avoiding the mistakes other e-commerce businesses make, you can create better strategies, hire the right people, make the most out of your budget, and increase sales.

Want to learn more? Read the article as I share eight of the most common e-commerce mistakes businesses make and how to prevent them from happening in the first place.