An Overview of the ACH Payment Processing System

​ACH is an acronym for Automated Clearing House. The ACH payment processing system is a faster and safer alternative to making payments using cash, checks, credit cards, and debit cards. The transactions that go through the ACH payment network, known as the National Automated Clearing House Association (NACHA), are processed electronically. The NACHA enables all depository financial institutions across the United States to process electronic deposits and withdrawals from and to consumer accounts.

ACH transfers have two main categories: direct payments for debit transactions and direct deposits for credit transactions. To initiate a direct payment transaction, a consumer provides the biller their bank account details, including the bank account routing numbers. In doing so, they authorize the biller to pull funds from their bank account to effect payment of a bill. For recurring payments, the consumer may opt to allow the biller to make automatic deductions from their bank account each time their bill becomes due.

Direct deposit, on the other hand, allows a person to receive payment from anywhere in the United States. ACH direct deposit is used in many ways, such as payroll payment to a worker, payment of pension or unemployment benefits by government agencies, peer-to-peer transfer of funds, and payment of a consummated business transaction.

Daniel Rich Galinson

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