Do you know ACH transaction meaning? It is an electronic payment form going through ACH (Automated Clearing House). It is ACH payments that offer more potential and flexibility to promote profits through checks, debit and credit cards.
What Are ACH Transactions?
ACH transaction represents the electronic flow of funds between banks. It is the funds that travel through the network of ACH and connects across the nation financial institutions in thousands. ACH is a secure, fast, and cost-effective method of transferring funds. Customers paying through ACH, the EFT (Electronic funds transfer) will show in the bank account as direct payment or deposit.
ACH transactions are different from eChecks, debit card payments, or wire transfers. It is a must to understand that ACH is an electronic payment, as the paper checkbook electronic version, with advantages. The transactions of ACH are simple and latest alternative to paper checks, cash, and debit or credit card payments.
Requirements of ACH payment are:
- The financial institution name receiving funds
- The account number of a recipient
- The account type of that bank
- The financial institution ABA routing number
What is ACH transfer or payment meaning?
An ACH payment is an electronic bank-to-bank payment taking place in the US. It takes place through the ACH network, and does not go through the card networks such as Mastercard or Visa. An ACH payment is known as an ACH transfer or ACH transaction.
The ACH payments are in two types:
- Direct deposits
- Direct payments
Direct deposit covers deposit payments of different types. It includes government or businesses to consumers. It includes government benefits, payroll, reimbursement of employee expense, annuities, refunds and other tax, and interest payments.
Direct Payment covers using funds for making payments, for individuals or organizations. This is an ACH transaction type concentration to ACH transfer or ACH payment. However, the ACH debit takes more than 3 working days to show in your bank account. The process fails for several reasons, causing longer processing times.
Define ACH transfer
ACH transfer meaning refers to a payment made over the network of ACH (Automated clearing house) that takes place between bank accounts. The transfer of ACH is used by consumers for things such as auto bill pay, direct deposit and by online businesses, business-to-business ( B2B) and other direct debit transactions.
Benefits of ACH
- Fewer costs- ACH payment does not relate to expensive card networks. It is an inexpensive way for transferring funds electronically.
- Suitable for all- Any US bank account can use ACH scheme. It includes consumers and businesses.
- High retention- Debit and credit cards expire causing a churn. A bank account with ACH payment is the main source for funds and so the involuntary churn risk is reduced.
How do ACH Transactions work?
The process of ACH transaction is simple:
- Originator starts the ACH payment. The originator may be a company, bank or an individual. It is applicable to ACH credits and debits.
- Originating bank yields ACH entries. The originator payment processor or financial institution yields the ACH entry.
- Originating bank forwards in batches the ACH entries to network operators. The originating financial institution depository sends the entries batches to Reserve Banks, the ACH operator or to EPN (Electronic Payments Network).
- Network operator classifies entries. The operator sifts through the entries batches and determines if they are payments or deposits.
- Network operator sends to recipient bank the entries. The operator sends to respective RDFI (Receiving Depository Financial Institutions).
- Receiving bank ascertains enough funds. As per the transaction the funds removal involves. The receiving bank ascertains there are enough funds available.
- Receiving bank debits or credits originating bank account. Depending on the transaction, the RDFI will credit or debit the receiving account.
Setting up ACH Payment Processing
Setting up ACH payment processing is helpful for your organization. Here are a few rules to know:
- NACHA certification- It refers to the trust signal given to your customers showing your business is functioning within the ACH network governance. This is a certification for third party operators handling transactions and not your organization. Yet, it is appropriate to choose an operator with this certification.
- Account verification- You may check regularly to ascertain the account information is updated with ACH. Send micro deposits to some other account and on receiving the acknowledge receipt you get to know there is proper funding and connection among the accounts. Using a third-party tool for validation or a NACHA provided tool is always helpful.
Same day ACH rules- With the ACH popularity growing, there is the same day option for payments. It allows the receivers to avail their funds at local time 1 pm, if the processing of the payment was done the same morning.
