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ACH – Understanding What ACH is and How ACH Works

ACH is a network in the United States that handles electronic financial transactions. Electronic payment and debit is a convenient, organized method of money transfer that has gained a lot of popularity in the last few years. Businesses like to use the system to disperse payroll without making their employees wait for a paper check. Direct deposit of wages saves employees time and gas money to go deposit a paper check. All that is needed for an electronic transfer is the bank routing numbers and client account numbers. Employers who offer direct deposit to their employees simply have their workers authorize them to notify their bank they have accepted the transaction with a signature and by supplying routing and account numbers.

Transactions through ACH are organized and recorded. The transfers are handled in batches and transmitted at a set time. This process makes funds available sooner to recipients. Many network customers like to set up automatic bill payments. Each month, a utility company may be authorized to debit a client’s account for service. This way, the company receives its payment on time. The client’s consistent payment history can reflect in a positive credit rating. The network transaction process is highly accurate if information is correctly entered. The network is also very secure with various electronic safeguards and verification procedures before, during and after the transaction process.

Other types of ACH network transactions include the disbursement of Social Security and tax refunds. E-checks and e-commerce payments are also facilitated through the network, along with some other types of consumer bills like car payments, mortgages, and insurance premiums. The number of electronic bill payments as climbed significantly in the last few years, up to nearly 20 billion, with more people than ever shopping online from the location of their choice. Qualified banks and credit unions have to agree to abide by NACHA’s operating guidelines. NACHA also provides financial education.

The types of people and organizations that participate in ACH transactions include the originator, the originating depository financial institution, receiving depository financial institution, receivers, operators, and third party service providers. The network handles both credit and debit transfers and funds are immediately available or at least much faster than through traditional methods like paper checks. The two managing operators of the electronic transfer network are the Federal Reserve and the Electronic Payment Network. They regulate and monitor the banks and credit unions practices and procedures in providing electronic transfers.

Posted in ACH, ACH Processing, ACH Service on Aug 25, 2010