What is ACH?
The ACH (Automated Clearing House) network is the principal method used by the banking system for moving money and payment related data electronically. Used by all kinds of financial institutions, millions of dollars are transferred via ACH from bank accounts every day.
For example, if a company regularly pays one of its vendors the same amount every month, they will initiate an ACH deposit using their bank account. Every month, the bank will use the ACH network to deduct the money from the company account and credit it to the vendor account.
How Does ACH Work?
- An Originator– whether that’s an individual, a corporation or another entity– initiates either a Direct Deposit or Direct Payment transaction using the ACH Network. ACH transactions can be either debit or credit payments and commonly include Direct Deposit of payroll, government and Social Security benefits, mortgage and bill payments, online banking payments, person-to-person (P2P) and business-to-business (B2B) payments, to name a few.
- Instead of using paper checks, ACH entries are entered and transmitted electronically, making transactions quicker, safer and easier.
- The Originating Depository Financial institution (ODFI) enters the ACH entry at the request of the Originator.
- The ODFI aggregates payments from customers and transmits them in batches at regular, predetermined intervals to an ACH Operator.
- ACH Operators (two central clearing facilities: The Federal Reserve or The Clearing House) receive batches of ACH entries from the ODFI.
- The ACH transactions are sorted and made available by the ACH Operator to the Receiving Depository Financial Institution (RDFI).
- The Receiver’s account is debited or credited by the RDFI, according to the type of ACH entry. Individuals, businesses and other entities can all be Receivers.
- Each ACH credit transaction settles in one to two business days, and each debit transaction settles in just one business day, as per the Rules.
How Can I Accept Credit Cards?