About ACH Payments

The Payflow ACH (Automated Clearing House) Payment Service enables you to electronically collect payments from your customers for either single-entry or recurring payments by directly debiting your customer's checking or saving accounts.

The most common uses of ACH are online bill payment, mortgage and loan repayment, and direct deposit of payroll. ACH payments are an efficient and cost-reducing alternative to paper checks and credit cards.

On the Internet, ACH is primarily used for person-to-person (P2P), business-to-customer (B2C), and business-to-business (B2B) payments.

Benefits of ACH Payments

Following are the benefits of ACH Payments

How Does ACH Work?

ACH payments are electronic payments that are created when the customer gives an originating institution, corporation, or other customer (originator) authorization to debit directly from the customer's checking or saving account for the purpose of bill payment.

Customers who choose ACH payment must first authorize you to debit their bank account for the amount due. Authorization must conform to the requirements of the ACH Operating Rules and must be either written and signed, or electronically displayed. See www.nacha.org for more information.

Payflow ACH Payment perform the payment in two parts. In the Debit/Sale payment example below, the Payflow ACH Payment service first moves the money from your customer's bank account and then moves the money to your bank account.

  1. A customer visits the biller's website. After customer authentication (user name and password), the biller's Web server presents the billing information.

  2. The customer reviews the bill. When the customer schedules a payment, your website collects the payment information, and using Payflow, securely sends it to PayPal for processing on the date specified by the customer.

  3. PayPal prepares the ACH payment information and delivers it for ACH submission to the originating depository financial institution (ODFI) by electronic transmission over a secure connection. The ACH payments are submitted to the ODFI on the customer-specified payment date.

  4. The ODFI processes the ACH payment information and electronically delivers the information to the ACH network operator (Federal Reserve). The ACH network operator electronically distributes the ACH items to the customer's bank (RDFI).

  5. The Federal Reserve credits the ODFI's bank account on settlement day for the value of all ACH debits deposited, and debits the RDFI's bank account for the value of ACH items received.

  6. PayPal then initiates a secondary transaction to move the money into your (biller's) bank account.

  7. The customer's periodic bank statements reflect ACH payments.

  8. Merchants are notified of ACH payments on their bank statements. Merchants use PayPal Manager to view status and reports on previously submitted payments.

  9. If a customer debit results in a return for insufficient funds, closed bank account, or other error condition, then PayPal debits your bank account for the amount of the return. Merchants use PayPal Manager to view return detail information.

Before submitting an ACH payment, you must first obtain authorization from the customer to debit their bank account for the amount due. For detailed information, refer to Summary of Authorization Requirements.

Differences from Credit Card Payments

Unlike the credit card network, the ACH network is unable to provide real time authorization of funds. The Payflow ACH Payment service therefore responds initially to an ACH payment by checking the format and other specific ACH information and returning an approved result. The status of a payment changes during the lifecycle of the payment and occurs when PayPal settles the payment with the ODFI and again if either a Return or a Notification of Change is received.

Schedule of Submission for Settlement

Because the ACH network operates only on banking days (not on banking holidays), PayPal settles at 7 PM the night before each banking day: Sunday, Monday, Tuesday, Wednesday, and Thursday at 7 PM.

Payment submitted Thursday after 7 PM are not sent for settlement until Sunday at 7 PM. If Monday is a banking holiday, then payments are sent for settlement on Monday at 7 PM.

If a payment is unsuccessful (for reasons such as a bad bank account number, insufficient funds, a dispute, and so on), PayPal gets a return from the ACH network - usually within 2-4 business days of payment submission.

For Business-to-Business transactions, a business has two days to dispute a charge.

For Business-to-Consumer, the consumer can dispute a charge up to 60 days after the payment was processed. Disputes are resolved through returns.

For more information, refer to the Payflow ACH Payment Service Guide on the Documentation page.