It happens like clockwork: Each May, NACHA—The Electronic Payments Association® celebrates Direct Deposit and Direct Payment via ACH Month. With this in mind—and before April gets too far behind in the rear view mirror—we at E-Complish thought now would be the perfect time to review everything you need to know about ACH transactions. Here are some common questions pertaining to these transactions, along with the answers.
Question 1: What does “ACH” mean?
Answer: “ACH” stands for “Automated Clearing House.” The Automated Clearing House Network—or ACH Network for short—is the electronic network that connects thousands of financial institutions across the U.S. The ACH Network is a batch processing system; as such, financial institutions accumulate ACH transactions throughout the day for later processing in “groups.” We’ll explore more about ACH transactions in the answer to Question 2.
Question 2: What are ACH transactions?
Answer: ACH transactions are transactions in which funds move electronically between two bank accounts—i.e., from a customer’s bank account to a merchant’s bank account or from an employer’s bank account to an employee’s bank account. Instead of using paper to carry necessary transaction information, as is the case with checks, ACH transactions occur via the ACH Network.
Question 3: What are the different types of ACH transactions?
Answer: ACH transactions come in two “flavors”: direct payment via ACH and direct deposit via ACH.
Direct payment via ACH is the use of funds in the payer’s bank account to make a payment. Individuals or organizations can remit a direct payment via ACH as an ACH credit or an ACH debit. When a direct payment is processed as an ACH credit, funds from the payer’s account are “pushed” into the payee’s account—for example, a consumer initiates a payment through his or her bank or credit union to pay a bill. But when such a payment is processed as an ACH debit, funds are actively “pulled” from the payer’s account—for instance, a consumer sets up a recurring payment for a mortgage or utility bill, and his or her bank account is automatically debited for the appropriate amount each month.
Meanwhile, direct deposit via ACH is the deposit of funds for payroll, employee expense reimbursement, government benefits, tax and other refunds, and annuities/interest payments. Any ACH credit payment from a business or government agency to a consumer falls under this umbrella.
Question 4: What information must be exchanged between payers and payees to make ACH transactions to work?
Answer: In order to remit funds via ACH, payers must provide the merchant with his/her bank’s routing number, along with the number of the bank account on which the funds will be drawn. Consumers who receive salary payments, government benefits, tax refunds, and annuities/interest payments through ACH transactions must share the same information with the payer so that funds can be properly credited to their account.
Question 5: How long does it take to receive funds from ACH transactions?
Answer: ACH credit and ACH debit transactions process quickly, with settlement typically happening the day after these transactions are initiated. NACHA Operating Rules stipulate that ACH credits settle in one to two business days and that ACH debits settle on the next business day. However, according to NACHA, recent enhancements to the NACHA Operating Rules “now enable same-day settlement of virtually all ACH transactions.”
The ability to quickly receive payments in their accounts is one reason merchants should seriously consider implementing payment processing solutions and services that accommodate ACH transactions. E-Complish offers a range of such solutions and services. Click here to learn more.