Direct Deposits and Payments are convenient and smart ways for individuals, government entities, and businesses to receive and send payments safely. EFT, direct debit, eChecks, and bank transfers are different types of payments that move on the ACH Network. ACH mandate is a payment system that works across all Indian banks and credit accounts. ACH's full form is Automated Clearing House, and its ultimate goal is to build confidence among parties that they will securely and accurately transfer the funds on time. For instance, when you apply for an easy Personal Loan, you can take the help of ACH payments to pay the EMIs automatically from your bank account each month.
ACH is a popular and low-cost way of sending money across bank accounts. In the following sections, we will explain what ACH mandate is, how it works, its features and benefits, and its comparison between ACH and ECS for finance loans. Read on to know more.
ACH full form is Automated Clearing House, an electronic system of funds transfer run by NACHA. It traces its origins back to the late 1960s, but it officially came into use in the mid-1970s. It is a network of electronic funds transfers that manage direct and automatic electronic payments. Many entities, including government agencies, individuals, and companies, use this facility to receive or send money. All in all, it is a safe transaction method most commonly used for consumer bills, refunds, tax payments, direct deposits, payrolls, etc. It requires a credit or debit from the originator and a debit or credit on the receiver’s end.
How Automated Clearing House (ACH) Works?
To transact via ACH mandate, the first step is for the originator, like a bank, person, or business, to start the transaction. The originating bank sends ACH entries in batches to network operators, which they forward to Electronic Payment Network or the Reserve Banks. The operator sorts through the entry batches and bifurcates them into payments and deposits. Then, they transfer the entries to the appropriate receiving banks. After confirming enough funds, the receiving bank credits or debits the recipient account depending on the transaction type.
What is ACH Mandate?
Need to know what is ACH mandate? Well, it is the process of setting up automatic payments from your account to the billing companies at regular intervals. For instance, if you have borrowed a finance loan and need to pay its EMIs each month on a specific date, you can set up the ACH e-mandate to transfer the EMI amount automatically from your bank account to the loan provider's every month. This way, you don't need to remember to make the payment manually. However, you must register with the mandate to set up this recurring payment.
What are the Types of ACH Transfers?
The ACH mandate makes financial transactions easier for both senders and recipients. You no longer need to write a paper check and wait for it to clear. There are two types of ACH transfers. Let’s explore them:
1. ACH Direct Deposit
Direct deposits are electronic transfers a government entity or business makes to a consumer. Payment types that fit in the category of ACH direct deposits include paychecks, government benefits, employer-reimbursed costs, tax refunds, interest payments, annuity payments, etc. The transfer is called the ACH direct payment if you are the sender. The transfer is called the ACH direct deposit if you are the recipient.
2. ACH Direct Payments
Businesses, individuals, and organizations use ACH direct payments to send money. For instance, paying an online bill using your savings bank account is called an ACH direct payment. Social payment apps also use the ACH network to send money to family and friends. Once you make an ACH direct payment, you can see the debit in your bank account with details about the transfer amount, date, and recipient. The recipient receives the money in their bank account, called an ACH credit.
What are the Features >What are the Features & Benefits of the ACH Mandate?amp; Benefits of the ACH Mandate?
ACH mandate offers multiple advantages for parties issuing payments or transferring money across bank accounts. These include the following:
Quick Transactions: The ACH network processes financial transactions in batches at regular intervals during the day, making digital transfers extremely easy and fast. According to the rules, the average debit transactions through ACH settle within one working day, and average credit transactions take at most two working days.
Increased Efficiency: The facility of the ACH network has already increased the timeliness and efficiency of business and government transactions.
Cheaper Transfers: ACH makes it more affordable for individuals to transfer money to various bank accounts directly using e-check, ACH e-mandate, or direct deposit transfers.
Faster Payments: Banking services typically took 2-3 business days to clear payments. However, after 2016, NACHA rolled out same-day ACH settlements in three phases. Phase three, launched in 2018, enables RDFIs to settle ACH debit and credit transactions on the same day, allowing receivers to withdraw the amount instantly, subject to the NACHA rules and right of return.
Suitable for Long Distance Money Transfers: ACH cuts off the time required for clearing physical checks when transferring funds to overseas accounts.
Simple Tracking: ACH makes accounting simpler to synchronize because banks directly linked to the EFT update both records in real-time. ACH mandate can integrate numerous accounting and tools programs to provide a thorough history of transactions.
Comparison Between ACH and ECS
ACH Mandate
ECS System
No paperwork involved
Needs a lot of paperwork
Minimal chance of rejection
High rejection rate
Settlement within 24 hours
Settlement takes 3-4 days
The facility of online dispute management system
No online dispute management system
Centralised security practices and rules for e-transfers
Security practices and regulations are largely affected by local hindrances
Conclusion
After exploring the topics of the ACH mandate, it is clear that it is an efficient, cost-effective, and secure system of transferring money between bank accounts. If you have taken out a finance loan, you can pay its EMIs regularly by registering to the ACH e-mandate. Are you looking for an easy Personal Loan? Download the Hero FinCorp loan app on your smartphone and begin the process instantly.
Frequently Asked Questions
1. What is an ACH transaction in banking?
An ACH transaction in banking allows you to receive and send money securely and conveniently from the comfort of your home. Direct deposits include benefits, tax refunds, and payrolls, while direct payments include bill payments, EMI payments, etc.
2. What is an example of an ACH payment?
There are two types of ACH payments: debit transactions that pull money from your account and credit transactions that push money to other banks. An example of ACH debit transactions is direct deposit payroll, which companies use to pay salaries to their employees' accounts on fixed dates. An example of an ACH credit transaction is recurring EMI payments that you can set up to make recurring finance loan EMI payments from your bank account to the credit provider’s account each month.
3. Is an ACH transfer safe?
Since ACH transfers involve real money, it’s obvious to worry about the safety of payments. However, don't worry; payments through the ACH network are the safest money transfer method. Transmitted data remains encrypted with bank-level encryption methods, reducing the chances of any compromise. Moreover, you can also reverse a payment if you suspect fraud or error.
Katyaini is a finance expert with a focus on the non-banking financial sector, bringing over 8 years of experience in NBFC. She specializes in simplifying complex financial concepts for readers, helping them navigate the NBFC landscape. Outside of work, she is passionate about travelling.
