Automated Clearing House

Automatic Clearing House (ACH) is a nationwide electronic funds transfer (EFT) system that provides for the inter-bank clearing of credit and debit transactions and for the exchange of information among participating financial institutions.

The purpose of ACH is to exchange (clear and settle) electronic transactions.

The Automated Clearing House is a secure, private electronic payment transfer system that connects all U.S. financial institutions. Direct paycheck deposits is an example of electronic fund transfer that are processed through this network.

Utilizing ACH payments is cheaper and faster than processing paper checks, both B2B (business-to-business) and B2C (business-to-consumer) e-commerce payment activities heavily rely on the ACH system and have helped give the system tremendous traction.


A Little History on ACH-

ACH was created in the early 1970s, when the ever increasing amount of paper checks used by both businesses and consumers to pay their bills would eventually overwhelm available computer systems and not allow the efficient processing and sorting of checks. The Federal Reserve intervened and agreed to provide the computer systems necessary to process and settle the ACH items between the financial institutions. In 1974, NACHA (National ACH Association) arose from regional ACH organizations and acted to coordinate the establishment of rules to facilitate the nationwide clearing of ACH payments.

NACHA is the organization responsible for developing the rules and the standards regarding ACH transactions.

In 2000, over 19.4 billion payments with a total value of more than $31.74 trillion were processed via ACH through the Federal Reserve System. Typical ACH payments include payroll, single and recurring bill payments and Social Security benefits.

A single ACH transaction will cost less per transaction than most methods of processing. Considerable savings depending on company volume is one of the best reasons why ACH has such great value in the marketplace.

FYI-ACH transactions cost considerably less than wire payments.

An ACH entry begins when a Receiver authorizes an Originator to issue an ACH debit or credit to an account. An Originator can be a person, your local cable company, charity or your employer. Depending on the ACH transaction, the Originator must receive written (ARC, POP, PPD), verbal (TEL), or electronic (WEB) authorization from the Receiver.

Once authorization is received, the Originator creates an ACH entry to be transmitted to an Originating Depository Financial Institution (ODFI), who can be any financial institution who offers ACH origination. This ACH entry is then sent to an ACH Operator (the FED or EPN) and is passed on to the Receiving Depository Financial Institution (RDFI), where the Receiver's account is issued either a credit or debit depending on the ACH transaction.

Contact a company that specializes in ACH payments and has either an online or software solution payment platform or financial institution that has an ACH payment platform . They will require an application, financials and information regarding your volume of transactions, types of transactions (single, recurring, WEB etc.) as well as other salient information about your organization. Based on the underwriting performed, they will establish $ limits on debits and/or credits you can transact daily and monthly. There will, most likely, be a time contract required.