Every year, billions of ACH payments are processed in the US because of their cost-effectiveness, security, and convenience. Businesses can accept payments from customers and other businesses through ACH payments and pay suppliers and staff. As a business owner, when you have to pay your staff, settle insurance claims, pay your energy bills, or collect recurring membership fees from your clients, you are utilizing the flexibility and low cost that ACH payments provide.
If done correctly, ACH payments are an easy and convenient way to transfer money. An ACH cannot be processed unless the correct bank and payee information are provided; otherwise, problems may cause delays or a void in the transaction.
Therefore, let’s begin to understand what an ACH routing number is, what it does, and why it is so important so that it can assure the smoothest, most frictionless ACH transactions possible.
What is an ACH in Banking?
ACH is an acronym for Automated Clearing House, a network that transfers money and information between banks and financial institutions in the United States electronically.
What is an ACH Routing Number?
Every US banking institution is given a nine-digit number known as an ACH routing number. It serves as a distinct numerical identification, assisting banks nationwide in determining the locations to which and from which to transfer electronic payments.
When ACH routing numbers were introduced in the 1970s, the US began to move away from the laborious use of paper checks and toward quicker and more convenient electronic payment methods. Thus, you will require your ACH routing number each time you send an ACH payment online.
The Evolution of ACH Routing Numbers
The ACH routing number system was established in 1970 by the National Automated Clearing House Association (NACHA) to facilitate electronic fund transfers and transactions. With the increasing prevalence of digital transactions, the system was modified to facilitate electronic fund processing.
The nine digits that make up an ACH routing number have distinct functions. The first two numerals indicate the institution’s location within the Federal Reserve Bank district. The district branch, also known as the processing center of the Federal Reserve Bank, is identified by the second set of numbers. The fifth to eighth numbers in an ACH routing number identify the bank within its Federal Reserve district, and the last number acts as a checksum to make sure that the previous figures were entered correctly.
The acceptance of electronic payments led to the expansion of the ACH network. By processing these payments effectively, the routing number system made it possible for institutions to send and receive money directly and accurately without physically moving paper.
What are ACH Routing Numbers Commonly Used for?
Even though ACH routing codes are only nine digits long, they are essential to the billions of ACH payments that occur every year between several banking institutions.
Uses of ACH routing numbers include the following:
- Direct deposits: ACH routing numbers, such as staff wage payments, are needed to set up direct deposits. Employers need their workers’ ACH routing numbers to make monthly ACH payments to their accounts, eliminating the need for paper checks.
- Bill payments: Customers must give their bank’s ACH routing number (with their account number) to permit a business or service provider to debit funds from their account for periodic payments such as utility bills, mortgages, loans, or other similar obligations.
- Online purchases: Many online businesses allow consumers to choose ACH transfers as a more convenient and economical payment option. To finalize the transaction, the customer presents their ACH routing and account numbers instead of their credit or debit card details.
- Utility bills: Utility companies use ACH routing numbers to receive monthly payments from consumers.
- Tax Refunds: To send and receive refunds for both federal and state taxes, ACH routing numbers can be used.
- Donations and payments: Companies and charitable organizations use them to collect donations or payments for services provided.
- International transfers: ACH routing numbers are necessary to enable cross-border ACH transactions. Nevertheless, international ACH has certain drawbacks: You must pay in local currency, which isn’t the quickest way to send money abroad. (In addition, not all banks initially provide foreign ACH transactions.) If you send money abroad frequently, you could be better off sending money by wire transfer.
ABA vs ACH Routing Numbers
Although ABA and ACH routing numbers help speed up payment processing, they do different jobs.
ABA numbers, also called routing transit numbers (RTNs), were made to make it easier to sort, bundle, and ship paper checks. They’re still used today to handle physical checks and wire transfers. You can find these numbers at the bottom left of paper checks. On the other hand, ACH routing numbers are used only for electronic transfers and payments. Some banks use the same ABA and ACH numbers for all ACH transactions, while others have separate numbers. This difference helps banks send transactions through the appropriate processing systems, whether for direct deposit, bill payment, or other purposes. Using the wrong number can mess up digital transactions or make them late.
Make sure to get the right ACH routing number from your bank’s website or customer service before making a transaction. This will help avoid any mistakes or issues during the transfer.
How do I find your ACH Routing Number?
Assume you would like to set up automatic monthly payments for your homeowner’s insurance or that you must download a P2P app to transmit money. You might not know what those necessary ACH digits are. We’ll review several alternatives to locate your bank’s ACH number. Finding them is simple as long as you know where to search.
- Bank Statement – Checkbook banks usually print your check’s ACH routing number directly on it. You might be accustomed to referring to it as your bank’s routing number. It’s the series of nine digits that appear at the bottom, adjacent to your account number.
- Bank Website or Bank App – Numerous banks directly offer account information on their websites and mobile apps, including routing numbers. Enter your login name and password to log in, then select your bank account to see more information.
- Online – It is easier to locate your ACH routing number using your search abilities. You should be able to locate your bank’s name and the phrase “ACH number” by typing them into a search engine. Remember that some big banks could have several regional ACH numbers; be sure to get the one that corresponds to your area.
To learn more about where to find details about ACH (Automated Clearing House) and wire transfers, as well as how to receive funds within the US into your Cheqly account, visit our guides:
1. Receiving Money Domestically
2. Finding Your ACH and Wire Details
Seamless ACH Payments with Cheqly!
Nine numbers that a bank uses to transmit money within a rapidly expanding network of institutions electronically are known as a routing code or ACH (automated clearing house) number. Having been in operation for many years, the ACH system facilitates safe and quick transactions, making life easier. While ABA routing codes, commonly observed on checks, and ACH numbers might be used for similar purposes, they are not always the same. ABA routing numbers primarily deal with paper checks, whereas ACH routing numbers allow electronic transfer within the ACH network. Simply verify your checks, visit your bank’s website or app, or use a search engine to get your ACH number. It is that simple.
Small businesses can streamline their finances by easily making domestic ACH payments to suppliers, employees, and others with Cheqly. Enjoy completely free ACH transfers without any hidden fees, making banking easier, faster and more secure for businesses.
Open a Cheqly account today and experience the ease and security of domestic ACH payments.
