Automated Clearing House (ACH) is an electronic network for financial transactions in the United States. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit, payroll and vendor payments. ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills. Debit transfers also include new applications such as the point-of-purchase (POP) check conversion pilot program sponsored by NACHA. Both the government and the commercial sectors use ACH payments. Businesses increasingly use ACH online to have customers pay, rather than via credit or debit cards.
ACH is a computer-based clearing and settlement facility established to process the exchange of electronic transactions between participating depository institutions.
Rules and regulations that govern the ACH network are established by NACHA and the Federal Reserve. In 2015, this network processed nearly 24 billion ACH transactions with a total value of $41.6 trillion. Credit card payments are handled by separate networks.
The Federal Reserve Banks, through the FedACH system, are collectively the nation's largest ACH operator. In 2005, they processed 60% of commercial interbank ACH transactions; the remaining 40% was processed by the Electronic Payments Network (EPN), the United States' only private-sector ACH operator. EPN and the Reserve Banks rely on each other for the processing of some transactions when either party to the transaction is not their customer. These interoperator transactions are settled by the Reserve Banks.
Bank treasury management departments sell this service to business and government customers
Direct debit payment of consumer bills such as mortgages, loans, utilities, insurance premiums, rents, and any other regular payment
Direct deposit of payroll, Social Security and other government payments, and tax refunds
Federal, state, and local tax payments
Non-immediate transfer of funds between accounts at different financial institutions (when a real-time transfer is required, a wire transfer using a system such as the Federal Reserve's Fedwire is employed instead)
Some common Standard Entry Class (SEC) codes: ATARC
Accounts receivable conversion
. A consumer check converted to a one-time ACH debit. The difference between ARC and POP is that ARC can result from a check mailed in whereas POP is in-person.
Back office conversion
. A single entry debit initiated at the point of purchase or at a manned bill payment location to transfer funds through conversion to an ACH debit entry during back office processing. Unlike ARC entries, BOC conversions require that the customer be present, and that the vendor post a notice that checks may be converted to BOC ACH entries.
Corporate cross-border payment
. Used for international business transactions, replaced by SEC Code IAT.
Corporate Credit or Debit Entry
. Used to consolidate and sweep cash funds within an entity's controlled accounts, or make/collect payments to/from other corporate entities.
Customer Initiated Entries
. Use limited to credit applications where the consumer initiates the transfer of funds to a company for payment of funds owed to that company, typically through some type of home banking product or bill payment service provider.
Corporate trade exchange
. Transactions that include ASC X12 or EDIFACT information.
Death notification entry
. Issued by the federal government.
International ACH transaction
. This is a SEC code for cross-border payment traffic to replace the PBR and CBR codes. The code has been implemented since September 18, 2009.
Consumer cross-border payment
. Used for international household transactions, replaced by SEC Code IAT.
. A check presented in-person to a merchant for purchase is presented as an ACH entry instead of a physical check.
. A debit at an electronic terminal initiated by use of a plastic card. An example is using your debit card to purchase gas.
Prearranged payment and deposits
. Used to credit or debit a consumer account. Popularly used for payroll direct deposits and preauthorized bill payments.
Represented check entries
. A physical check that was presented but returned because of insufficient funds may be represented as an ACH entry.
. Oral authorization by telephone to issue an ACH entry such as checks by phone. (TEL code allowed for inbound telephone orders only. NACHA disallows the use of this code for outbound telephone solicitations unless a prior business arrangement with the customer has been established.)
. Electronic authorization through the Internet to create an ACH entry.
Destroyed check entry
. A physical check that was destroyed because of a disaster can be presented as an ACH entry.