What is Direct Credit?

A direct credit is an electronic transfer of funds through the ACH (Automated Clearing House) system. The payment is initiated by the payer, which sends funds directly into the bank account of the payee. Settlement usually occurs within one or two business days. Direct credits are commonly used to make periodic compensation payments to employees. This approach may also be used with suppliers.

Advantages of Direct Credit

The main advantage of using direct credit payments is that funds can be shifted to the payee very quickly. In addition, this represents a secure form of payment, since there is no check payment that might otherwise be sent to the wrong party or fraudulently intercepted.

Disadvantages of Direct Credit

There is little room in a direct credit transaction for additional information about the nature of a payment, so this detail may be sent to the payee separately in a remittance advice. Since this information must be sent separately, it represents a possible disconnect between the payer and the payee, where the payee may not receive information about exactly what is being paid for.