ACH Payment Processing
Automated Clearing House (ACH) payments are a method of electronic funds transfer (EFT) that allows funds to be sent from one bank account to another, electronically. ACH payments have been around for over 40 years, having first been developed as an alternative method of transacting money between accounts to paper checks, creating a more efficient, faster and safer means of transferring funds.
ACH payments are facilitated through the ACH network, a nationwide, batch-oriented electronic funds transfer system that is governed and operated by NACHA, the National Automated Clearing House Association and their operating rules. The rules set out by NACHA provide the means by which interbank clearing of electronic payments take place, making it possible for depository financial institutions to participate in the ACH network.
Who Uses ACH Payments
Businesses and government entities alike have long utilised the ACH Network for payments, using the network as a primary means of direct deposit payroll, benefits and tax returns. The popularity of ACH payments has grown among consumers in recent years, with more and more of them opting to setup recurring bills for things such as loan, mortgage and utility payments as opposed to other payment methods.
ACH payments are typically used for:
- Direct deposit of payroll by companies or of social security and benefits by government entities, including tax refunds;
- Direct one-off or recurring payments of bills by consumers, including insurance premiums, loans, mortgages and utilities;
- B2B payments;
- Payment of local, federal and state taxes.
How ACH Payments Work
There are 4 stages of ACH payment processing. These stages are:
- Authorization Stage
The fund transfer stage of ACH payment processing is initiated by the payments Originator which is you, the merchant. The originator is required to receive authorization and customer bank account information before being able to initiate an ACH payment. This request is then processed by ACHPay and our processor bank. It’s at this point where a request is then sent to the customer’s bank for the funds owed.
- Fund Transfer Initiation
At this stage an ACH payment request is sent to the customer’s bank in an ACH file, the format of this file adhering to the format specified in NACHA’s operating rules. This request included the amount of money requested, transaction date and a unique transaction number. It’s only possible to process ACH payments once the consent of both parties has been sought and confirmed.
The customer’s bank then reviews the request for authorization sent from the processor bank then decides on whether to accept or decline the transaction request within the set, limited time frame, depending on the transaction type and decline reason, if any.
- Primary Fund Transfer
This stage of ACH payment processing is when funds are moved from the customer’s account to the ACH processor’s bank. This stage takes approximately 1-3 business days, however this is typically quicker, being completed overnight.
- Secondary Bank Transfer
This stage of ACH payment processing is when the funds are transferred from the bank account of your ACH processor to your company’s account. After the ACH processor bank have analysed the primary fund transfer transaction funds are released and settled automatically into your account. When funds become accessible depends on which bank your account is with, although these will typically clear within 1-5 business days.
ACH Processing: Facts and Statistics
ACH Processing Facts
- The ACH Network is a batch processing system that makes it possible for financial institutions to accumulate transactions throughout the day before sending them in batches for processing;
- ACH payments differ from traditional paper-based checks as they’re transmitted electronically, resulting in lower costs and faster processing times;
- Two types of transactions can be processed through the ACH Network. These transaction types are Direct Payments and Direct Deposits;
- Direct Payment through the ACH networks is when funds are taking from a bank account in order to make a payment. Organizations and individuals can both make Direct payments through the network, either as ACH debit or ACH credit payments.
- Direct Payments that are processed as ACH credits work by pushing funds into a bank account. Direct Payments that are processed as ACH credits work by pushing funds into a bank account. An examples of Direct Payment Credit is payroll payments.
- Direct ACH payments are processed as ACH debits, pulling funds from a bank account. Examples of such payments would include recurring payments setup by customers, such as in the case of monthly bill payments such as loans, mortgages and utility bills;
- ACH credit and debit transactions are processed quickly, with funds typically being transferred and settled the very next business day;
- NACHA’s operating rules require that ACH credits are settled within 1-2 business days of being submitting for processing, whilst ACH debits are required to settle the very next day. NACHA have also recently enhanced their operating rules to enable same-day settlement for most ACH transactions.
ACH Processing Statistics
- The total transaction volume of the ACH Network grew up to 23 billion in 2014, a 5% increase on 2013
- The total dollar value of transactions on the ACH Network surpassed $40 trillion in 2014, a 3% increase on 2013
- B2B transactions on the ACH network in 2014 increased 7.3%
- Almost half of all ACH Network transactions are recurring payments, a type of transaction that grew 4.4% in 2014
Learn more about ACH payment processing from ACHPay
If you’d like to find out more about ACH payment processing from ACHPay, how our processing solution works and how it can help you and your business, please contact us for more information.
You can contact us either by email or through the contact form provided on the contact us section of our website. We’ll get back to you within 24-48 hours of receiving your message with all of the information you’ll need to get up and running with our ACH processing solutions.