Direct deposit is a type of payment sent through the Automated Clearing House network, much like ACH debit or credit transactions.
For employees, direct deposit is a quick and flexible way to be paid. Since direct deposit relies on bank account information, employees or vendors can direct payment into different types of accounts like savings or spending accounts.
ACH Payments allow businesses to control payment amounts and can easily adjust account information when needed. Regardless of the method you choose, as a business, it is important to rely on regular processing to ensure your vendors are happy and paid on time. Both ACH transfers and Direct Deposit can offer you this assurance.
ACH Payment Overview
ACH payment is a type of electronic funds transfer that is processed through the Automated Clearing House network. Using pre-authorized bank account information, funds are transferred from one account to another, with the ACH verifying and directing the flow of money. The ACH Network clears batches of transactions at specific points throughout the day.
This means your payment may take a few days to process, but since this is considered to be one of the safest methods of money transfer in the U.S, it is often worth the wait.
Processing payment through ACH can often be a less expensive option, as money transferred directly to and from bank accounts is not subject to fees normally associated with other payment methods like credit card processing. With ACH, you have a few different options available to fit your business needs.
Businesses can initiate automatic payments using ACH Debit transactions or one-time authorized payments using ACH Credit transactions.
Direct Deposit Overview
Direct deposit makes payment much easier for businesses that regularly pay employees or vendors for reoccurring services.
Rather than initiating a payment to a vendor for the same amount every week, direct deposit allows you to automate the process to avoid late payments or individual invoice tracking. Direct deposit works by sending an electronic payment from one bank account to another, withdrawing funds from one and depositing them into the other immediately.
It is a reliable way to send money without using paper checks, which can be forged or lost in the mail.
What is the Difference Between ACH and Direct Deposit?
ACH direct payments and Direct Deposit payments both utilize the same secure network to transfer funds from one bank account to another.
The main difference between the two methods of payment is in control: direct deposit payments are set up between the company and the vendor or employee and initiate reoccurring payments to a specific account.
If that amount changes, a schedule is adjusted, or the account information changes, the direct deposit process must be halted and altered before payment can continue. ACH direct payments allow businesses to have complete control over the payment amount and date, which is beneficial for businesses with a great deal of changing outgoing expenses.
For regular payments, Direct Deposit is quick and easy for both the business and the entity. However, adjusting direct deposit amounts requires manual changes and can cause issues during processing.
For employees or vendors, a potential downside to direct deposit is that companies can alter or remove funds from their authorized account in the event of an error. If a company overpays a vendor or employee, for example, they could reverse the payment without needing additional approval.
ACH transfers allow companies to control payment amount as it is paid to ensure accuracy and for vendors or employees to have additional control over their accounts.
ACH vs. Direct Deposit At A Glance
Should you process payments through ACH direct payment or direct deposit? If you are regularly paying employees or vendors the same amount every week, setting up a pre-approved direct deposit can automate the payment process.
Your business authorizes payment but does not have to track individual invoices or mail physical checks, which saves both time and money. However, ACH direct payment gives your company more flexibility and control over funds.
Overall, the difference between the two is the amount of control your business has over its payment information. You can easily change the payment amount, date of payment, or routing information using ACH transfers, whereas direct deposit automatically sends payment at a set time without intervention.