ACH stands for Automated Clearing House. Since it began operating in the early 1970s, the ACH Network has been an electronic payment network used by individuals, businesses, financial institutions, and government organizations. The network is sometimes referred to as Electronic Funds Transfer (EFT).
The ACH network is a batch electronic funds transfer system governed by the NACHA Operating Rules that provide for interbank clearing of electronic payments for participating depository financial institutions.
The Federal Reserve and the Electronic Payment Network Act as ACH Operators, central clearing facilities through which financial institutions transmit or receive ACH entries.
The ACH Network operates end-to-end through a series of explicit or implicit agreements with all participating Financial Depository Institutions (FDIs) agreeing to comply with the NACHA Operating Rules. Inherent in this agreement is the responsibility of the DFI to ensure that its clients follow procedures that complement the safety, soundness and efficient operation of the ACH Network.
Through the ACH Network, funds are electronically credited or debited to a company’s or individual’s deposit account. These deposit accounts include checking, savings, loan, and general ledger accounts from financial institutions. Both funds and information can be exchanged between financial institutions on behalf of businesses and individuals using electronic payments, providing enhanced cash management capabilities.
Every ACH transaction is traceable. It is probably the only system in the country where not a penny has been lost or found.
ACH transactions are transmitted with the following information: the name of the account holder, the financial institution routing and account numbers, the party initiating the transaction, and the amount and date of the transaction. Additional payment information can be submitted with an ACH payment by using extended record formats called addendums. Addendums may include accounting-related information, such as an invoice number or shipping notice.
Participants in the ACH Network
1. Company or individual originator (Original)
2. Originating Depository Financial Institution (ODFI)
3 ACH Operator (Federal Reserve or Electronic Payment Network)
4. Receiving Depository Financial Institution (RDFI)
5. Recipient company, employee or client (Recipient)
ACH payments include:
or electronic checks
o Direct deposit of payroll; Social Security and other government benefits; and tax refunds;
o Direct payment of consumer bills such as mortgages, loans, utility bills and insurance premiums;
o Business-to-business payments;
o Federal, state and local tax payments.
What is NACHA? (http://www.nacha.org)
The National Association of Automated Clearing Houses (NACHA) was formed in 1974 to oversee the ACH Network. NACHA is a not-for-profit association that represents more than 11,000 financial institutions through direct memberships and a network of regional payments associations, and 650 organizations through their industry councils. NACHA develops operating rules and business practices for the ACH Network and for electronic payments in the areas of Internet commerce, electronic bill presentment and payment (EBPP, EIPP), electronic checks, electronic financial data interchange (EDI), international payments, and electronic benefits services (EBS).