What is an ACH payment?

Definition

An ACH payment is an electronic transfer from one bank account to another over the Automated Clearing House network. On the books of the party that receives it against an open sale, cash goes up and accounts receivable goes down.

ACH is a batch rail, not a same-day wire and not a card settlement. Banks collect instructions, clear them in groups, and post them on a one-to-two-day cycle.

Where it shows up

Balance sheet: Located in the current assets section, as cash up and the receivable down.

P&L: Related to nothing extra; the sale was already earned.

Cash flow: Related to the collection hitting operating cash.

See also: Wire Transfer · Check Run · Accounts Payable

When you look at the Balance Sheet after a customer ACH lands, cash in current assets is higher and the receivable is lower. Net assets do not change if you only applied a collection.

On the Statement of Cash Flows, the collection is operating cash in. The original revenue already hit the Income Statement when you earned the sale.

The P&L does not move again. The strip above says nothing extra because the sale was already earned.

On the bank feed the line often reads ACH CREDIT with the customer's name. Match that line to the open invoice the cafe meant to pay.

If you are the payer, the same rail reduces cash and accounts payable. This page's example stays on the receipt so the journal matches the collection.

How it works

The sender authorizes their bank to push funds, or the receiver is authorized to pull funds. Either way, the instruction enters the ACH network rather than a card processor or a same-day wire desk.

How an ACH payment usually works:

• Approve the bill or collection and set the ACH instructions
• Submit the batch to the bank or processor on a schedule
• Cash usually settles in one to two banking days
• Record the cash movement when the books treat the payment as made or received
• Match the bank posting on the next reconciliation

The network batches those instructions and settles them on a scheduled cycle. Most small-business credits post the next banking day, sometimes the day after.

The receiving bank credits the merchant's checking account. That credit is the cash event you book against the open receivable.

The sending bank debits the payer. From the cafe's seat, cash falls and a payable already on the books is cleared.

Fees are usually small compared with a wire. Record a bank fee only if one actually posts, and do not invent a processor cut the way you would for a card batch.

Stay on this rail. A wire is a one-off same-day bank instruction, and a card settlement is a processor depositing net card sales.

ACH can also pay vendors and employees. Those uses share the same network, and they do not change the customer-receipt journal on this page.

Support is the bank line plus the invoice numbers the cafe named. If the bank line has no invoice numbers, you still have cash in, and you still need to match it later.

Returns happen when the account is closed or the authorization is wrong. The return reverses cash and puts the receivable back until you collect another way.

Example

A florist has an open $400 bread invoice to a cafe. The cafe sends $400 from its bank to the florist's bank over ACH.

The florist records the receipt this way:

Debit: Cash $400

Credit: Accounts receivable $400

Cash is $400 higher. The cafe's receivable is gone.

The Income Statement does not move. The sale was already earned when the bread went out.

The cafe's books are the mirror if it had recorded a payable to the florist. This page stops at the florist's receipt.

Common mix-ups

An ACH payment is not a wire. A wire is a same-day, one-off bank instruction that usually costs more, while ACH is a cheaper batch rail that posts on a cycle.

An ACH payment is not a card settlement. Card money arrives through a processor after fees, while ACH moves bank to bank without that processor cut.

An ACH payment is not the check run itself. The check run is a scheduled batch of vendor payments, which may go out as checks or as ACH, but the run is the batch, not the rail.

Related terms

• Wire Transfer: A same-day bank transfer, usually for large or urgent payments.
• Check Run: The scheduled batch in which approved vendor bills are paid.
• Accounts Payable: Amounts the business owes vendors for goods or services already received.
• Bank Statement: The bank's period record of every transaction and the ending balance.
• Net Pay: The amount actually paid to an employee after withholdings.
• Cash Application: Matching incoming customer payments to the right open invoices.
• Operating Bank Account: The main checking account through which day-to-day receipts and payments flow.
• Payment Terms: The agreed deadline and conditions for paying an invoice.