What is ACH payment processing and how it works

ACH is Automated Clearing House which is a method of payment popular with financial institutions. Automated Clearing House or ACH payments are payments done through a network which coordinates electronic payments and electronic automated money transfers. ACH is a means for initiating and finalizing transactions directly to and from the bank accounts. The following are the details of the process of ACH transactions and how it works:

The Process of ACH Transactions

·         The first step of an ACH transaction is imputing the transaction into the web portal of the ACH website. The transaction is imputed into the system after it is approved by the ACH user. The clients that input the information of the transaction into the system is called an originator.

·         At the end of the business day, all the transactions of the day are compiled and sent to an ODFI. An ODFI is an originating depository financial institution. An ODFI is essentially a bank. After compiling all the transactions at the ODFI the transactions are then sent to an ACH operator where the ACH operator facility is used as a clearing facility for the transactions.

·         The ACH operator then sends the transactions to the various RDFIs or receiving depository financial institutions or banks receiving the transactions. These RDFIs notify the “receivers” of the transaction which is the people whom the money is sent to via the transaction and who are customers of the RDFIs where the transaction is sent to by the ACH operator.

·         The receiver is the person who authorized the originator to make the transaction via ACH payment method. The transaction has to be completed within a timeframe after which the money if not transacted is sent back to the originator through the same route.

Conclusion

The entire process of an ACH payment takes 3-6 working days and this is a smart method of transaction and payment processing which is used by people all over the world. This method is a safe and reliable way to transact money through the banking system.

ACH and check processing