Sunday, April 19, 2009

What is ACH?

This should have been our first post, but better late than never. Every once in a while we get the question "What is ACH?".

Automated Clearing House
ACH stands for the Automated Clearing House Network. The ACH network is a nationwide electronic funds transfer system. The network is overseen by the NACHA operational rules. They provide the interbank clearing for electronic payments for participants. The electronic payments network and the Federal Reserve are in the position of ACH Operators or the central clearing houses which financial institutions to receive or transmit Automated Clearing House transactions.


ACH Volumes
According to Nacha the number of ACH payments originated by financial institutions increased to 8.05 billion in 2002, up 13.6 percent from 2001. These payments were valued at $21.7 trillion. Including payments originated by the Federal government, there were a total of 8.94 billion ACH payments in 2002 worth more than $24.4 trillion.

ACH Types of Payments

  • eCommerce, web sites etc
  • eChecks payments
  • B2B (Business to business) payments
  • Mortgages
  • Tax payments made to local, state or federal government
  • Direct deposits, government benefits, Social Security, tax refunds, payroll
  • Insurance premiums
  • Mortgages, loans
  • Utility bills
  • Insurance
  • Other consumer bills

Basic ACH Terms
Originator
An entity, individual, corporation that initiates entries into the ACH network.

Originating Depository Financial Institution (ODFI)
A participating financial institution that originates ACH entries at the request of and by (ODFI) agreement with it's customers.


Receiving Depository Financial Institution
Any financial institution qualified to receive ACH entries that agrees to abide by the NACHA Operating Rules and Guidelines

Receiver
An individual, corporation or other entity who has authorized an Originator to initiate a credit or debit entry to a transaction account held at an RDFI.

Hope that helps, clear up some confusion. If you would like to know more about the ACH network or NACHA please visit their site or leave a comment.

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