ACH payment processing, initiated in the early 1970s, is electronic processing through the Automated Clearing House network between personal accounts , business accounts, financial organizations and government departments. This huge network, serving about 115 million people, 3.5 million companies, 20,000 institutions, is a national grid for electronic fund transfers between various bank accounts of both credit and debit financial transactions. ACH transactions are commonly referred to as “direct deposit.”

The transfers, done in electronic batches for credit and debit transactions between various financial institutions, is governed by a non-profit association called NACHA, or National Automated Clearing House Association. NACHA establishes the best business practices and the basic rules for the network. It has been responsible for unprecedented growth in the payment processing industry, and today credit and debit transactions through the ACH network has become a widely accepted way of doing business in the United States. In fact, it is considered the most efficient and cost effective way for electronic fund transfers in North America.

The way the ACH processing payment processing system is fairly simple. The ACH network and the Federal Reserve act as a central clearing system for credit and debit transfers between financial institutions. Thus, it acts as a medium for checking, saving, and loan fund transfers, among other financial transactions.

It makes financial transactions cheaper and faster because of the absence of time and cost in processing paper documents like checks, envelopes, stamps, dollar bills, and ledgers. A person can authorize their bank account to pay recurring bills like mortgage, rent, utility, memberships, and insurance premiums. The account holder does not have to take time to write checks and lick stamps, the post office does not have to deliver it, and the bill collector does not have to have a processing clerk to receive it. Instead, a few routine electronic blips completes the whole transaction in seconds using computer technology. Similarly, a consumer can just as easily receive a paycheck through ACH direct deposit and does not have to stand in a bank line during a lunch break to deposit it.

The ACH network makes cash management almost effortless. It saves money and it improves business work flow. A lot more business gets handled in less time, and it gets handled more efficiently.