What is ACH ?

Every time you pay a bill online, you transfer money into your online savings account or your employer direct deposits your paycheck, do you know what kind of a transaction is really taking place in the back end ?
Its called an ACH transaction.

Let me explain.

ACH stands for Automated Clearing House.

The ACH Network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system governed by the NACHA OPERATING RULES which provide for the interbank clearing of electronic payments for participating depository financial institutions. The Federal Reserve and Electronic Payments Network act as ACH Operators, central clearing facilities through which financial institutions transmit or receive ACH entries.

ACH payments include:

* Direct Deposit of payroll, Social Security and other government benefits, and tax refunds;
* Direct Payment of consumer bills such as mortgages, loans, utility bills and insurance premiums;
* Business-to-business payments;
* E-checks;
* E-commerce payments;
* Federal, state and local tax payments.

More recently, the ACH network is being used to convert check payments into ACH debit transfers. By providing the appropriate disclosures, businesses can use account information on checks to initiate ACH debit transfers and reduce payment processing costs.

The Standard Entry Class (SEC) code is a three letter code that identifies the nature of the ACH entry. Here are some common SEC codes:

ARC
Accounts Receivable Entries. Checks received by a merchant through mail or drop box and presented as an ACH entry.

BOC
Back Office Conversion. Checks that are converted from paper to an electronic debit at a centralized location.

CCD
Corporate Cash Disbursement. Primarily used for business to business transactions.

DNE
Death Notification Entry. Issued by the Federal Government.

POP
Point-of-Purchase. A check presented in-person to a merchant for purchase is presented as an ACH entry instead of a physical check.

PPD
Prearranged Payment and Deposits. Used to credit or debit a consumer account. Popularly used for payroll direct deposits and preauthorized bill payments.

RCK
Represented Check Entries. A physical check that was presented but returned because of insufficient funds may be represented as an ACH entry.

TEL
Telephone Initiated-Entry. Verbal authorization by telephone to issue an ACH entry such as checks by phone.

WEB
Web Initiated-Entry. Electronic authorization through the Internet to create an ACH entry such as PayPal.

XCK
Destroyed Check Entry. A physical check that was destroyed because of a disaster can be presented as an ACH entry.

ACH payments have been around for some time now, but people are just getting used to them, especially with the ARC, POP, and RCK, where the original instrument was a physical check.



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