ACH Setup Guide
This guide details how to get your ACH program started, and includes additional information about the expected behavior of ACH payments, which often differs from other common payment methods, like credit cards.
ACH (Automated Clearing House) is an electronic payment system that enables consumers and businesses in the United States to make payments between bank accounts. ACH transactions are processed several times in batch windows set by the Federal Reserve and according to regulations set by the National Automated Clearing House Association (NACHA).
ACH Overview
Key Entities in ACH
Start here to understand terms important to an ACH transaction.
Federal Reserve
Serves as the backbone of the ACH network, acting as the central clearing facility for most ACH transactions. The Fed maintains strict processing windows that dictate when transactions can be submitted and settled, sets the holiday schedule that ACH abides by, and implements regulatory changes that can affect transaction handling requirements.
National Automated Clearing House Association (NACHA)
The governing body of ACH, NACHA manages the administration, development, and governance of the network.
Originating Depository Financial Institution (ODFI)
The financial institution that initiates ACH entries at the request of its customers. ODFIs assume the risk and regulatory responsibility for transactions they originate and set category restrictions, transaction limits, monitoring thresholds, and reserve requirements on clients, in addition to maintaining certain standards for visibility into business and transaction data.
Payee / Receiver
The business or individual receiving payment.
Payer / Originator
The consumer or business authorizing a payment and sending the funds to complete a transaction.
Processor
Organizations that handle the technical aspects of submitting and receiving ACH files. We are an ACH processor.
Receiving Depository Financial Institution (RDFI)
The financial institution that receives ACH entries and posts them to the accounts of its customers. RDFIs may have their own return rate thresholds and monitoring practices.
ACH Entry Types
We offer three entry types for ACH transactions: WEB, CCD, and PPD.
WEB (Internet-Initiated Entries)
Used to debit funds from a consumer bank account and requires explicit authorization by the customer. Commonly used for online bill payments, subscriptions, and e-commerce. NACHA requires account validation for WEB debits. Our Account Validation tool fulfills this requirement.
CCD (Corporate Credit or Debit)
Used for B2B payments like vendor invoices, corporate disbursements, rent, and utility payments. While no explicit NACHA rule requires account validation, payer authorization is still necessary and can be gathered via email or other contact methods.
PPD (Prearranged Payment and Deposit)
Used for credits such as payroll or recurring bill payments. Authorization must be documented.
Summary of ACH Entry Types
| Consideration | WEB | CCD | PPD |
|---|---|---|---|
| Fraud Risk | High | Medium | Medium |
| Return Timeframes | Up to 60 days | Generally 2 days | Up to 60 days |
| Account Validation Required | Explicitly Required | Strongly Recommended | Strongly Recommended |
Phases of an ACH
Payments
ACH payments are defined by us as Transactions with two legs:
- Capture (Pay-in) – the first leg
- Payout – the second leg
Transaction = Capture + Payout
Returns
Transactions can be returned post-settlement using one of three methods:
Refund
A new ACH transaction initiated by the original recipient to return funds.
Clawback
A reversal of the original transaction due to error or failure. Associated with a NACHA Return Code.
Reverse Payout
A debit initiated by the original payer to reverse a credit, or in the event a payout fails.
Cancellations
Transactions may be cancelled prior to entering the Capture state. This is only possible until the next processing window.
| Consideration | Refund | Clawback | Reverse Payout |
|---|---|---|---|
| Who Initiates | Payee | RDFI/ODFI | Payer |
| Transaction Type | New ACH transaction | Return on original | New ACH transaction |
| Timing Flexibility | Any time | Strict windows | Defined in authorization |
| Amount Flexibility | Can be partial | Full only | Typically full amount |
ACH Speed
- Standard ACH is typically settled in 3-5 banking days. We settle Standard ACH in 4 days by default, with pathways to reduce this time frame down to 2 days available if our risk tools are applied.
- Fast ACH is our same / next-day settlement speed. With this method in use, transactions processed before 1:15pm ET will settle same-day, and transactions processed after 1:15pm ET will settle next-day, overnight.
Transaction Windows
ACH transactions are processed in scheduled windows. We help navigate these for faster processing.
Lifecycle of an ACH
This sequence describes the happy path of an ACH payment.
- Transaction Initiation (Capture Pending)
- Entities: Payer, Payee
- The Payer authorizes the payment, submits account info and amount. The Payee formats data for ACH submission.
- Capture Processing
- Entity: Processor
- Processor performs risk/compliance checks as necessary and submits to the ACH network.
- ODFI Receipt (Capture Complete)
- Entities: Processor, ODFI
- ODFI validates and forwards transaction to ACH Operator.
- Operator Receipt
- Entity: Fed or Clearing House
- ACH operator receives and sorts for RDFI distribution.
- Payout Initiation (In Payout)
- Entities: Processor, RDFI
- RDFI validates and posts funds to Payee’s account.
- Transaction Completion (Payout Complete)
- Entities: Payer, Payee
- Funds are fully transferred from Payer to Payee.
The numerous touch points across the lifecycle of an ACH account for its historically delayed time frame for settlement—a common pain point remedied by our services. It is important to note that ODFIs and RDFIs can operate their own transaction windows within the Fed’s windows. We take on the burden of navigating this complexity to move ACH as quickly as possible, seamlessly for you.