How to Use ACH Processing

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Use ACH Processing
Use ACH Processing

How to Use ACH Processing. Automated Clearing House (ACH) processing is a highly reliable and secure electronic funds transfer system used by banks and financial institutions to clear debit and credit transactions between organizations or individuals. ACH processing is more cost-efficient than processing paper checks and is becoming increasingly relied on by U.S. financial institutions each year. The following steps will help you understand and use ACH processing.

Realize that the starting point for an ACH transaction is a receiver authorizing an originator to issue an ACH transaction (debit or credit) to the receiver's account. An originator could be an individual, a utility company, a retail store, or your employer.

Understand that an Originating Depository Financial Institution (ODFI) is a bank or financial institution that acts on behalf of the originator to enter a transaction into the ACH network. An ODFI sends the originator's ACH transaction data to an ACH operator.

Know that an ACH operator, typically the Federal Reserve, routes the ACH transaction to the appropriate Receiving Depository Financial Institution (RDFI).

Distinguish that the RDFI is a bank or financial institution acting on behalf of a receiver (an individual, corporation or entity) to issue either a debit or credit to the receiver's account. The RDFI presents the funds on the receiver's statement.

Evaluate whether your business could benefit by using ACH processing instead of paper checks.

Research ACH vendors to determine which vendor best meets your needs.

Establish an account with an ACH vendor and begin using ACH processing for routine transactions.

Tips & Warnings

  • The National Automated Clearing House Association (NACHA) develops the standards by which ACH processing is governed.
  • The ACH network was conceived in the early 1970s as a response to concerns among financial institutions that the volume of paper checks used by businesses and consumers would eventually exceed the capacity of existing computer systems to process checks efficiently.
  • ACH Payments come in many forms, including direct deposit (payroll, social security, tax refunds); direct payment (mortgages, utility bills, loans, debit card purchases); business-to-business payments and tax payments.
  • Always review your statements from banks and financial institutions utilizing ACH processing to ensure accuracy of processing. Report any errors to your financial institution for correction.

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