ACH stands for Automatic Clearing House. It is a secure, private, nationwide system created specifically for electronic funds transfer (EFT). This system provides for the exchange of information between banks and other financial institutions. It uses the Federal Reserve Banking System to allow for the disbursement of funds used in credit and debit transactions. An example of the way the network functions is when your personal banking account receives and registers a paycheck that has been accepted via direct deposit.  Using this type of electronic system is faster than processing paper checks and inexpensive in comparison.

With the increase in online shopping and invoicing, business to business and business to consumer ACH transactions are becoming more common. The amount of funds moving through this network continues to increase as a result. With each transaction, there is a record created containing specific information. It includes the routing and account number that the payment is originating from, transaction amount, and the date of the transaction. If there is an expanded record format in the software being used, an invoice number may also be included. To the consumer, this transaction is seamless. However, there are many steps involved in the process to get the funds from one account to another.

A company, known as the receiver, authorizes a business or an individual, known as the originator, to begin a transaction to their account. This account can be held at almost any financial institution. The originator prepares the transaction information for all participating companies and sends it to the Originating Depository Financial Institution (ODFI). This is the organization that actually places the ACH files into the network for processing.  The central clearinghouse for the network processes all of the transaction files and distributes them to the appropriate Receiving Depository Financial Institutions (RDFI’s).  At this point, the funds are deposited into the intended accounts.

The date and dollar amount of the transactions are posted to the account statement. There are many regional ACH associations that are part of this network. The National Automated Clearing House Association creates and enforces the operating rules and guidelines by which business is conducted throughout the network. Though this process is faster than processing paper checks by hand, it does not happen instantly. From the moment a payment is authorized, it may take three to four business days for it to reach its intended recipient. Using this method for payment is secure and, unlike regular first class mail and can be tracked through every stage of processing.

For more information please contact us at www.nationalprocessing.com or call 800-403-8182.