How Long Do ACH Transfers Take The Dirty Secrets on How ACH Works

Update: This article was originally written in 2016 and updated in 2020

When overseeing your company’s expense policy and reimbursements, a (very) common question you’re sure to hear is “When will I get reimbursed?”

More often than not, companies reimburse employee expenses through a system called Automated Clearing House (ACH). ACH transfers traditionally take four or five business days to go through, although same-day ACH transfers are becoming increasingly common too.

This article helps you walk through the intricacies of ACH to shed some light on how long ACH transfers take.

What is an Automated Clearing House (ACH) payment?

If you aren’t quite sure what ACH payments are (also known as ACH transfers), you can think of the direct deposit for your payroll or using a service like PayPal to send money to someone from your bank account. It’s how you transfer money from one bank account to another without writing a check. The ACH system was created in the 1970s to alleviate the number of paper checks a bank needed to process each day.

An example of how ACH payments work

Here’s an example use case of an ACH transfer:

ABC Corp wants to reimburse its employee Sarah $100. ABC Corp uses Silicon Valley Bank for a corporate bank account and the Abacus platform to manage reimbursements; Sarah uses a local credit union.

ABC Corp approves the $100 expense in Abacus for Sarah.
Abacus uses its bank, Wells Fargo, to send instructions to debit $100 from ABC Corp’s Silicon Valley Bank account.
The instructions go to the Federal Reserve (the clearing house) who passes it along to Silicon Valley Bank.
The funds then show up in a holding account at Wells Fargo.
Silicon Valley Bank typically has two* days to reject the transfer.
No confirmation is sent from Silicon Valley Bank that everything is OK, so step 6 is just about waiting out the two day window.
A second set of ACH instructions is then sent from Wells Fargo through the Federal Reserve to Sarah’s local credit union that $100 is to be deposited into Sarah’s bank account.

Start to finish, the example for this ACH process usually takes four or five business days.

Gusto did a really great job in their 4 part blog series explaining the technical mechanics behind the ACH process if you want to dig further into the specifics of the “how.”

So how long do ACH payments take to transfer?

The short of it: ACH payments historically take four or five business days to transfer. In 2018, the ACH network started supporting same-day ACH transfers between two financial institutions in the US.

Why ACH payments often take four or five days:

Four or five days is still a rather general answer to how long ACH transfers take — especially when running all of a company’s expense reimbursements. If employees are worried that their ACH transfers aren’t showing up, it may simply be because the transfer takes so long to complete.

When researching the answer to this question, I scoured the book of rules from NACHA (National Automated Clearing House Association – these guys literally wrote the book on ACH) which is two inches thick, yet I still couldn’t find a concrete answer.

Knowing this was over my head, I asked our CTO – “Okay Josh, so where exactly is the money at each point in the process?” His response – there is no money.

Ummm…. what? I felt like Neo in The Matrix realizing that there is no spoon.

But in reality, when doing an ACH transfer, it’s not black and white. There isn’t a person at the other end picking up a bag of cash and bringing it to another bank to complete your transfer. Your ACH transfers are more like a digital series of instructions and record keeping by each bank and the Federal Reserve.

What does this have to do with the time schedule of an ACH transfer?

When someone hands you a bag of money, you know that they had it to give to you. You know that you have it now to spend. It’s pretty black and white. It’s tangible.

ACH is more like telling someone they have the money to spend unless they are told otherwise at some point over the next two days. Most people won’t spend the money in case they need to give it back. Since there is no actual confirmation, you are only left to assume that you can spend it when the waiting period is up.

So why the two day window? Each bank has its own way of keeping and reviewing records – some faster and more sophisticated than others. In order to make it possible to move money to and from any bank in the United States, the NACHA rules are built to accommodate the smallest, slowest bank. Some banks still use a human element or have limited resources and that slows down the process for everyone. NACHA rules have to give everyone a chance to review the transactions and raise the red flag to ask for their money back.

But why the difference between four OR five days?

This is mostly a matter of timing. Some vendors and banks have cut off times for sending batches of ACH instructions to the Federal Reserve and most only process ACH payments during normal business hours – not during bank holidays or weekends. At Abacus, our cutoff time to process ACH is 6pm EST Monday through Friday, and not on banking holidays. That means that for any expense approved before 6pm, the ACH will get sent that night. So the difference between four and five days is based on lining up the timing of each part of the process across all of the institutions involved.

Until the magical day when banks are all operating on the same wavelength, we’re stuck between 4 and 5 days to process ACH. The light at the end of the tunnel is the same day ACH that the industry is trying to move towards.

According to NACHA:

“[Same Day ACH] will build upon existing, next-day ACH Network capabilities and establish a new option for same-day clearing and settlement via ACH. Under the Rule, two new same-day settlement windows will be added to the ACH Network, increasing the movement of funds between financial institutions from once each day to three times each day. The Rule also requires that all Receiving Depository Financial Institutions (RDFIs) receive same-day transactions and provide faster funds availability to customers, creating value for end uses through its reach to all bank accounts and ability to give consumers and businesses a new option to quickly pay bills and receive funds faster.”

How same-day ACH works

In 2015, NACHA approved a plan to implement two settlement windows every business day at 1pm EST and 5pm EST.

Each business day suddenly had three system-wide process deadlines each day.

Starting September 23, 2016, financial institutions were required to be able to process ACH credit requests in all three settlement windows. (That means simply being able to process requests to add funds to an account.)
On September 15, 2017, banks additionally needed to accept debit requests in the same three settlement windows.
On March 16, 2018, banks were required to make funds available by 5:00PM local time for ACH credit transactions processed in the day’s first two settlement windows. (That means not just appearing as “Pending” on your bank ledger, but being fully settled as a completed transaction.)