What is ACH payment processing?


Quick Answer

Automated Clearing House, or ACH, payment processing is an electronic authorization network used by financial institutions to instantly approve funds transfers initiated by businesses or consumers, according to the Consumer Financial Protection Bureau. Payroll direct deposit and automatic bill payment from a bank are common examples of ACH payment processing.

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Full Answer

Financial institutions manage ACH transactions through batch processing, which allows the origin bank to accumulate payments in batches and transmit them periodically through a central operator, such as the Federal Reserve, the National Automated Clearing House Association explains. ACH operators transfer batches to the receiving institutions, which are given one to two days to settle the payment, depending on the type of transaction.

The payor sets up ACH payments by providing the receiving party with a bank account number and routing number, the Consumer Financial Protection Bureau states. In some cases, the transaction is approved instantly, but processing takes several days before the funds are reflected in the destination account. The payorメs bank may instantly reject a preauthorized ACH payment if the account balance is insufficient.

The ACH network is governed by the NACHA operating rules, and all financial institutions that originate or receive ACH payments pay fees for every transaction entry, the National Automated Clearing House Association notes. Per-entry dues cover the administrative costs of operating the network and ensure that each institutionメs contribution is proportionate to individual network activity.

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