Basics of ACH Transactions and Best Practices in ACH Payments

Author: Brent Meyers
National Automated Clearing House Association (NACHA) manages the development, administration, and governance of the Automated Clearing House (ACH) Network, the backbone for the electronic movement of money and data in the United States.
Automated Clearing House
ACH is an electronic network for financial transactions in the United States.
Types of ACH Transactions
The list of ACH transactions could be long, but can be broken in to a few parts: Consumer (sent from a company to individuals), corporate (credits or debits between corporations), commercial (payments originated from a company), and government (originated from a government entity).
Operating Rules
They provide complete technical specifications and should be used in conjunction with information provided by your financial institution. Copies can be obtained by ordering from NACHA.org or any of the regional payment associations. Companies sending ACH debits and credits are bound by all warranties. An Originator must obtain authorization from each Receiver prior to initiating ACH Transactions. Most authorizations are required to be in writing. Your company can initiate reversals within five (5) banking days following the settlement date of the original items. Your company must make the change indicated in any Notification of Change (NOC) prior to delivery of the next entry. On a two-day cycle, the rules call for an RDFI to make funds available at the opening of business on the settlement date. It is updated annually.
Participants in an ACH
The participants in ACH are: Originator (Originating company or individual), OFDI (Originating Depository Financial Institution), ACH operator, RDFI (Receiving Depository Financial Institution), receiver (receiving company or individual) and third-party service provider (optional).
Structure of an ACH File
An ACH file contains a file header record, company/ batch header record, entry detail records, entry detail addenda records, company/ batch control record and file control record.
ACH Transactions
A common ACH credit would be a direct deposit of payroll. A common ACH debit would be direct payment of insurance premiums. ACH payments are processed in a batch process for future settlement. For example, a Direct Deposit file would be originated in Wednesday or Thursday for a Friday payday. Highly recommended, though not required, you send an electronic pre-notification (pre-note) before adding a new receiver to a direct deposit or payment program. This is a zero-dollar transaction sent for accuracy. Financial institutions offer products such as ACH Debit Blocks and Authorizations and ACH positive pay to protect companies against fraud.

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