Automated Clearing House
ACH Processing is an Alternative to Paper Payments
May 30, 2009 Shawmick Mukherjee
A new alternative to the traditional mode of paper payments is here, and it’s called the Automated Clearing House or ACH. ACH makes the money transfer process much easier in the corporate milieu. Whether it’s the transfer of electronically debited funds from a company’s account or it’s the transfer of electronically credited funds to an employee’s deposit account, ACH makes the transactions more seamless. That’s the reason why ACH is increasingly being used by government organizations, financial institutions, business enterprises and individuals. Furthermore, due to its inherent qualities of lowering overall costs and enhancing cash management, the ACH process is experiencing a surge in popularity in the United States.
Financial Institutions
ACH has made its presence felt in the US, wherein a nationwide network exchanges information and funds in all of the US's 50 states, along with its territories. According to achnetwork.com, around 98% of US's financial institutions (Including numerous saving banks and credit institutions) are involved with ACH. Nacha.org states that the surging popularity of ACH has sparked off the development of a worldwide ACH network- the Worldwide Automated Transaction Clearing House (W.A.T.C.H), which is soon to be established.
Customer Account
The ACH process integrates certain basic entry details such as the individual's name, customer account number, amount, effective date for the transaction and the financial institutions routing number. The "Addenda Records" can be used in case additional payment information needs to be sent. The Addenda generally contains payment-centric information like shipping advice or invoice number.
Transaction
The primary participants in ACH Processing are the Originator, which may include the company or individual initiating the ACH transaction; the ODFI which serves as the financial institutions depositing the ACH files into the ACH network on the Originator's behalf; the ACH Operator which acts as the central clearing facility and the Receiver who authorises the Originator to carry out an ACH entry to the Receiver's account.
ACH Processing
In the Automated Clearing House process, the Receiver (A company or an individual) authorizes an Originator to initiate a transaction to the Receiver's financial institution account. Subsequently, the transactional information is prepared by the Originator and handed over to an Originating Depository Financial Institution (ODFI). The ODFI collects and then consolidates the ACH transactions and sends them over to the ACH Operator. In turn, the ACH Operator processes these files and passes them to the Receiving Depository Financial Institutions (RDFls). After it receives entries for customer account, the RDFI's job is to post those entries on the settlement date.
Payments
Achnetwork.com states that the year 2007 has witnessed ACH figures crossing 18 billion payments . Additionally, a total value processed by ACHs through the Federal Reserve was more than $36 trillion. With the arrival of ACH processing, financial transactions such as social security benefits, payments of salaries and paying recurring bill are becoming faster, safer as well as hassle-free.
Automated Clearing House
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