What is the Difference Between Real-Time Payments (RTP) and Automated Clearing House (ACH)?

Modern banking is more efficient and versatile than ever before. These days, you have numerous options for sending and receiving money. With a payouts API like Dots, you're no longer limited to just one rail when you need to send payments to contractors, marketplace sellers, affiliates, etc. While traditional debit cards and mobile payment services are widely used, electronic money transfer protocols reign supreme.

Businesses looking to pay contractors often choose to make ACH or RTP payments. These two options settle quickly and forgo the complexities of other payment rails, offering a headache-free way for your recipients to get their money. While ACH and RTP appear similar, they work differently behind the scenes and provide unique benefits for you and your contractors.

So which one is right for your business? In this guide, we'll break down the biggest differences between RTP and ACH and help you determine which type of electronic transfer is right for your business.

A Brief Overview

RTP and ACH are payment rails facilitating digital transfers between a payer and a payee's bank account. They both fall under the "electronic" or "digital" transfer umbrella. However,  RTP and ACH are not the same as wire transfers. With wire transfers, information travels directly from one bank to another. The funds travel through separate networks with RTP and ACH for security and efficiency.

ACH stands for Automated Clearing House. When you pay contractors with ACH, funds move through the ACH network, governed by the National Automated Clearing House Association (NACHA). The network connects banks and credit unions in the United States and beyond, allowing financial institutions to process transfers in batches.

The network started in 1974 and became the gold standard for digital transfers. According to NACHA, the network processed over 29 billion payments in 2021 alone, accounting for over $72 trillion.

RTP, or real-time payments, is a newer alternative to ACH. It became available in the United States in 2017 when The Clearing House launched RTP®. Despite its relative newness, RTP is getting more popular every year. In only three years, the financial institutes that hold 70 percent of U.S. demand deposit accounts performed RTP transfers. Like ACH, RTP payments run through a separate network to get to recipients. But as the name implies, these payments settle instantly.

Transactions process as soon as you initiate them, appearing in the recipient's bank account within seconds. While not available at every bank, RTP adoption is growing rapidly.

Difference in Availability

One of the biggest differences between RTP and ACH is the timing of when funds become available. ACH transfers take a little longer to process, but you  have more control over how quickly recipients get access to their funds. Standard ACH transfers complete in three to four business days. However, there is also next-day and same-day ACH. Choosing a faster processing window comes with added fees.

Wait times are virtually non-existent for RTP transfers. Real-time payments networks are instant. Your contractors, sellers, subject-matter experts and all other payout recipients will get their money immediately. The funds settle as soon as you facilitate the transactions.

Another thing to consider is the overall availability of payments based on the day. ACH is only available on business days. Banks process them in batches once or several times a day. They don't process transfers on the weekends or bank holidays.

RTP payments, however, are available 24 hours a day, seven days a week. They will go through and provide immediate access to funds around the clock.

Type of Transfer 

There are two types of transfers you can perform.

The first is a credit transfer, also called a "push transfer." The payer initiates a push transfer, depositing money into the recipient's account. This is the most common type of transfer. It occurs when you buy goods from an online retailer or receive direct deposit payments into your bank account. In those examples, you're the payer requesting to send money to the recipient. If your business sends payouts, you would be the payer requesting to send money to your payees.

The second type of transfer is a debit transfer, or "pull transfer." These transaction requests come from the recipient. The recipient, or payee, requests to pull money from the payer. A good example of debit transfers would be paying for recurring subscriptions or approving invoices for payment. For example, signing up for a streaming service subscription gives the platform permission to request a debit transfer every month.

ACH and RTP differ in the types of payments you can make. With ACH, you can perform both debit and credit transfers. However, you can only do credit transfers with RTP. Recipients can't request real-time payments, and only the payer can initiate them.

Remittance Information

Remittance information refers to the information provided by the payer to the payee. This information can include the amount transferred, invoice numbers, etc. This data can be important for financial teams and recipients.

With ACH, you only have 80 characters to provide remittance information. Meanwhile, RPR allows for 140 characters.

Batched vs Individual Transactions

Banks process ACH payments in batches. That's one of the benefits of ACH transfers that financial institutions gain. It's also why ACH transfers tend to be more affordable.

Many institutions will collect the necessary information to initiate payments and hold them for processing at specific times throughout the day. Some banks will process ACH payments in large batches at the end of the day, but many will process them at regular intervals. Either way, the batched processing adds to the wait time. If not initiated during standard business hours, the payment may only be processed the next day. In the case of late Friday payments, the transfer may not occur until the following Monday.

RTP payments process immediately and individually. You don't have to wait for the batch processing. Because banks treat these transfers individually, you're not bound to processing intervals or business hours.

Varying Limits

ACH and RTP can handle large sums of money. However, there are differences in how much you can transfer during each transaction.

For RTP, you can send up to $1,000,000. ACH payment limitations depend on the speed of the transfer. There are no limits for next-day transfers, but you can only do up to $1,000,000 for same-day processing.

Financial institutions often have separate limits depending on your account type. Some banks limit ACH to as low as $25,000 per day. However, you may be able to forgo those limitations if you pay a higher fee or perform certain transactions.

Benefits of Real-Time Payments

It's not hard to see why RTP is a compelling choice for businesses. Recipients love real-time payments, but there are several other perks worth considering.

Faster Option

The biggest reason RTP is such a huge hit is that it's much faster than the alternatives. People don't want to wait around to get their money. While waiting a few days for recurring ACH payments usually isn't a problem, some of your payout recipients need urgent access to funds.

That's where RTP shines brightest. Even the fastest ACH option, same-day ACH, takes several hours to process. But with RTP, it's instant. Instant access to their money is a game-changer for contractors that could help you attract the best talent.

Funds Can’t Be Stopped

One often-overlooked benefit of RTP is its overall permeance. Because transfers happen instantly, it's like handing someone a wad of cash. The payment is complete in seconds, and no one on either side can stop it.

Blocks and stops could significantly delay the processing time with other payment rails. The payment stays in limbo until the parties address issues. That's not the case with RTP. Once you initiate a transfer, it's out of your hands and finished in seconds.

See More Information About Payments

Finally, RTP offers more information about payments than alternatives like ACH. You get 140 characters for remittance information. That might not seem like much, but it can make a big difference. The extra data can benefit financial teams and payment recipients.

For you, the payer, it helps with bookkeeping. Your financial department can record every payment you send, tracking payment history to maintain accurate tax records. Recipients will benefit from the added remittance data, too. The extra information is good for reconciling accounts and ensuring that all invoices are accurate.

Benefits of Automated Clearing House 

While ACH isn't your only option for paying contractors, it offers many significant advantages you can't get with other payment rails. Here are just a few of the most notable.

Security

Security is always a top priority, and ACH does a fine job of reducing risks. Other payment rails are highly susceptible to fraud. Even wire transfers can have issues.

ACH payments must go through a clearinghouse. The network has strictly enforced rules and regulations. ACH networks are purpose-built to be safe and provide peace of mind. The Electronic Fund Transfer Act of 1978 also gives payers up to 60 days to recover funds due to ACH fraud or error.

Efficiency

Thanks to the batched nature of ACH, it's an efficient option for many businesses. If you send payouts regularly or to multiple recipients, it's a great choice. Not only are payments easy to do, but you can use a platform like Dots for automation. Furthermore, ACH is scalable, ensuring your workflow doesn't get more complicated as your business grows.

Affordability

Making payments through cards or app-based platforms can get expensive. Card processors might charge you a flat fee or a percentage of the transaction. The same goes for mobile services.

ACH is a far more affordable option. It's cheaper than RTP. Costs can vary, but processors typically charge less than a dollar. Others process them for free. The cost savings alone are a substantial benefit, making it one of the most popular choices for businesses needing to pay contractors.

Simplify Your Payouts With the Dots API

ACH and RTP can help you pay everyone from international contractors to domestic marketplace sellers quickly and efficiently. Both options have their merits, and there's no single-best choice for all businesses. It all depends on what's important to your operation and workflow. RTP networks offer speed and instant results. Meanwhile, an ACH network offers reliability and scalability.

Whatever option you choose, turn to Dots to simplify how your business makes payments. Our payouts API can help you send and receive money on multiple platforms, giving your recipients ultimate control and flexibility while handing you the power of automation. Dots provides a unified platform that changes how you move money. Save time and resources while creating a standout experience for contractors.

Check out Dots today to learn more and improve your payouts game!