Everything About ACH Payments

Everything About ACH Payments
Sukanya29 December 2023

ACH payments have become increasingly popular in recent years, moving more than $72 trillion in the United States in 2022 alone, representing a 5% increase from the previous year. In India, 3.7% of all electronic payments are through ACH, too. Innovations such as same-day ACH have made ACH transfers more accessible and convenient to users.

Let’s understand what ACH entails, how it operates and how you can make informed decisions about payment methods!

What is ACH Payment?

Automated Clearing House, or the ACH network, is an interconnected computer system that communicates with each other to help transfer or receive payments. ACH payments do not restrict themselves to transferring person-to-person money, but individuals can use the ACH network to: 

  • Pay bills online
  • Pay salaries to employees 
  • Tax refunds or tax payment 
  • Mortgages and loans

The transactions executed through ACH must follow the guidelines set by the National Automated Clearing House, or NACH. 

ACH transfers involve three entities

  • The ACH operator: can either be the Electronic Payments Network (EPN), run by a collective of 24 large banks, called The Clearing House, or FedACH, run by the Federal Reserve banks. 

  • ODFI (Originating Depository Financial Institution): the bank or financial institution through which an individual initiates the ACH transfer.

  • RDFI (Receiving Depository Financial Institution): the bank or financial institution that receives the initiated payment.

The Clearing House works as the central authority to clear ACH transfers between the two participating financial institutions.  

Businesses, such as IT services exporters, use ACH transfers similar to BACS and SEPA because of their low transaction cost, reduced errors and frauds, efficient payables management, and automated recordkeeping. 

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