What is the Automated Clearing House (ACH)?

Automated Clearing House (ACH) is an electronic payment system used by financial institutions for financial transactions.

The ACH payment system is governed by The NACHA Operating Rules and the Federal Reserve Bank. The ACH system was created to reduce the use of paper checks by consumers and financial institutions and the automated system also allows for faster processing than paper processing. The ACH accomplishes this by forming a vast network that connects banks from all over the country. ACH processes large volumes of credit and debit transactions in batches. “ACH transactions are then accumulated and sorted by destination for transmission during a predetermined period”¹.

How ACH Works

The ACH transaction begins when an entity called a Receiver, authorizes another entity referred to as the Originator to issue ACH debit or credit to an account. A Receiver is “an individual, corporation or other entity that has authorized an Originator to initiate a credit or debit entry to a transaction account held at an RDFI (Receiving Depository Financial Institution)”¹. An Originator is “any individual, corporation or other entity that initiates entries into the Automated Clearing House Network”¹.

The Uses of the ACH

The ACH network enables the following payments:

• Direct Deposit of payroll, Social Security and other government benefits, and tax refunds
• Direct Payment of such consumer bills as mortgages, loans, utility bills, and insurance premiums
• Business-to-business payments
• e-Checks
• e-Commerce payments
• Federal, state, and local payments

This article covered the basics of this electronic payment system. ACH has changed how payments are received in a dynamic way. For more information about ACH or Automated Clearing House please refer to the links in the sources section below. These sites are excellent for learning more about ACH more in depth. More specifically, these links cover how ACH works for individual institutions in detail.

Sources:
¹http://www.nacha.org/c/achnetwork.cfm
http://www.newyorkfed.org/aboutthefed/fedpoint/fed31.html
http://en.wikipedia.org/wiki/Automated_Clearing_House

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Sybria White

Sybria White is a senior at the University of North Carolina at Chapel Hill. Upon graduation in May 2010, she will leave Carolina with a Bachelor’s Degree in Sociology, a Certificate in Career Development and will be awarded a Public Service Scholar. She plans to attend graduate school to pursue a Master’s Degree in Public Health following taking a year off to contribute to a National Service Program, such as AmeriCorps. Her undergraduate career has taught her the value of a sociological perspective, which has influenced her dedication to public service. She is a volunteer for W.D. Hill Recreation center, Peer mentor for minority students and has served as an active member of several campus organizations such as Sociology club, North Carolina Health Careers and Access Program, Community Government, and Minority Advising just to name a few.

Apart from contributing public service and active involvement on campus, Sybria is very passionate about creative writing and writing in general and hopes to bring a sociological point of view to her articles. Her interests outside of writing and public service include reading books concerning fashion and spending time with her family.

A well rounded curriculum involving Business and English academics in addition to sociology, have helped shaped this young writers’ unique voice. She is eager to share her newly acquired skills and looks forward to helping others approach every day problems from a new, and perhaps, sociological outlook.

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