ACH Basics
What the ACH Network is, who takes part in a payment, and where to go next.
What is ACH?
The Automated Clearing House (ACH) Network is an electronic payments network used by individuals, businesses, financial institutions, and government organizations. It allows funds to be electronically debited or credited to a checking account, savings account, or financial institution general ledger account, or credited to a loan account.
The ACH Network is the backbone for the electronic movement of money and related data, providing a safe, secure, reliable network for direct consumer, business, and government payments. Large and small financial institutions of all kinds jointly govern and use the ACH Network, facilitating billions of payments such as Direct Deposit via ACH and Direct Payment via ACH.
The ACH Network is a same day, batch processing, store-and-forward system. Financial institutions store transactions throughout the day and process them at specified times in a batch mode.
The ACH Network exchanges funds and payment-related information throughout the United States, its territories, and internationally.
Who takes part in an ACH payment
Several participants contribute to the successful completion of an ACH transaction. Here is where your business sits among them.
| Participant | Who this is | What they do |
|---|---|---|
| Originator | This is you | The company or business that has been authorized by the Receiver to either credit or debit an account |
| Receiver | This is your customer or vendor | An individual or a company that has authorized the Originator to credit or debit their account |
| Third-Party Sender (TPS) | This is Straddle | An entity that has a contractual relationship with an ODFI to transmit debits or credits to the account of a Receiver on behalf of the Originator |
| Originating Depository Financial Institution (ODFI) | This is Straddle's bank | The financial institution with which the TPS has a contractual relationship for ACH services. It is responsible for sending ACH entries into the ACH Network on behalf of the Originator. |
| Receiving Depository Financial Institution (RDFI) | This is your customer's bank | The financial institution with which the Receiver has an account relationship |
| ACH Operator | This is the Federal Reserve | The central clearing facility for ACH transactions. There are currently two ACH Operators: the Federal Reserve Bank and EPN (Electronic Payments Network). |
Your company is the Originator when you initiate credit transactions to an employee's account for payroll, or when you initiate debit transactions to a consumer or business account for payment of goods or services. Your company is also the Originator when you convert your lockbox checks to ACH, initiate a payment to a vendor to pay an invoice, or accept a phone payment from a customer to pay a bill. Any time your company initiates an ACH payment, credit or debit, you are the Originator.
Who governs the ACH Network
Nacha is the organization that governs the ACH Network. It translates federal legislation and executive rules into guidance for member banks and network participants, enforces those rules across more than 10,000 member banks, and drives development and adoption of the ACH system.
Those rules reach past the banks. They extend to all ACH network participants, including payment processing partners like Straddle, businesses, and individuals who use the network. Businesses that collect payments over ACH have specific obligations, including verifying that an account is valid and able to accept ACH transfers before initiating an online debit.