An Automated Clearing House or ACH is a system that allows businesses to transfer funds electronically between accounts at other financial institutions. This type of transaction is usually done through electronic data interchange (EDI).
EDI is a term often associated with banking transactions, so you might already know what it means. In addition to transferring money, ACH also allows businesses to pay bills and send invoices.
ACH is a network of banks that allows companies to move money from one account to another without having to physically go to the bank. Savings in terms of both time and money are the primary advantages of ACH.
ACH transactions are processed through two parties: the originating depository financial institution (ODFI), and the receiving depository financial institution (RDFI). This is how it works:
Employers must receive these details to make an ACH payment to an employee's bank account:
ACH payments usually took 3 to 5 days for deposits to reach their destination. As the number of merchants accepting ACH payments continues to rise, so does the demand for faster ACH processing times.
In response, NACHA developed a new service called Same Day ACH Payments. This service allows merchants to receive their payments within 24 hours.
When NACHA started same-day ACH transfers, it opened up two additional clearing windows:
ACH payments can be canceled within three business days before the scheduled payment date by contacting your bank or institution that initiates the payroll. Your organization's name and payment amount are required.
A reversed ACH payment can only be made if these conditions apply:
The reverse payment must be appealed within five business days.
ACH, ETF, and direct deposit are three types of electronic payments. Payments by direct deposit and ACH are both forms of electronic funds transfer (ETF). While EFT refers to all types of digital payments, ACH refers to a particular type of EFT. That’s the main difference.