Key Terms

ACH

Stands for Automated Clearing House, a network run by Nacha (National Automated Clearing House Association). Since the 1970s, the ACH network has electronically moved money between bank accounts across the United States.

ACH Credit

Funds moving through the ACH system that are pushed into an account.

ACH Debit

Funds moving through the ACH system that are pulled out of an account.

ACH Entry

Used to describe a single transaction submitted to the ACH Network.

ACH Fees

Fees associated with payment processing, typically ranging between zero to ten dollars per payment, depending on the specific processor.

ACH Network

The electronic network where ACH Entries are settled between participating depository financial institutions (banks and credit unions).

ACH Operator

The “Clearing House” where participating depository financial institutions automatically settle ACH Entries. There are only two: The Federal Reserve (FedACH) and The Clearing House (EPN).

ACH Return Code

One of 85 possible reasons for disputing (or returning) an ACH Entry. Each return submitted by the RDFI must include a return code.

Authentication

A data security technique used to ensure that the professed sender of information or a payment order is actually who they claim to be.

Authorization

A written agreement signed by an employee or customer, or an authenticated electronic process, that allows the posting of debits or credits arising from ACH transactions to the employee’s or customer’s account.

Batch Processing

A method of aggregating multiple ACH Entries into “batch” files before they are transmitted between Third-Party Senders, ODFIs, RDFIs, and the ACH Operator.

Business (Banking) Day

Any day on which the DFI is open to the public for carrying on substantially all its banking functions.

Bank Secrecy Act (BSA)

US legislation implemented in 1970 to prevent criminals from using financial institutions to launder money. Institutions must report large transactions, suspicious activity, and maintain compliance with regulatory agencies.

Business/Company

An individual, sole proprietorship, partnership, or corporation engaged in a commercial enterprise or venture.

Consumer Account

An account held by a DFI and established by a natural person primarily for personal, family, or household—not commercial—purposes.

Corporate Credit or Debit (CCD ACH)

An ACH application that transfers funds between corporate accounts for collection or disbursement purposes.

Direct Deposit

A deposit made to a consumer’s account via ACH. Commonly used for payroll, social security, and pension payments.

Direct Payments

A charge to a receiver’s account via ACH. Common for insurance, utility, mortgage, and loan payments.

Effective Entry Date

The date the originator has requested that the entry post to the receiver’s account.

Electronic Authorization

A digital form of ACH authorization that must be visible, retainable, and verifiable (e.g., PIN, digital signature).

Electronic Funds Transfer (EFT)

Any transfer initiated via terminal, phone, or computer to debit or credit an account at a financial institution.

Electronic Signature

An electronic sound, symbol, or process logically associated with an agreement or authorization with the intent to sign.

Federal Reserve System

The U.S. central bank made up of 12 district banks. All national banks are members; others may opt in.

File

A group of ACH entries with control totals. A file may contain multiple batches and represents the smallest unit sent or received by the ACH system.

Financial Crimes Enforcement Network (FinCEN)

A bureau within the U.S. Department of Treasury created to combat money laundering and terrorism financing.

Know Your Customer (KYC)

A set of due diligence guidelines requiring financial institutions to verify customer identity and assess risk.

Know Your Business (KYB)

Due diligence process to verify a business’s legitimacy, helping prevent fraud and comply with AML regulations.

NACHA

National Automated Clearing House Association – the governing body that sets and enforces ACH transaction rules.

NACHA File Format

Also called ACH file format. A structured plain text file used to execute ACH transfers through NACHA standards.

Notification of Change (NOC)

A correction sent by a receiving institution that identifies and fixes incorrect transaction data.

Originating Depository Financial Institution (ODFI)

A financial institution that originates ACH entries on behalf of itself or external clients.

Originator

The individual, business, or entity that initiates ACH entries.

Office of Foreign Assets Control (OFAC)

A U.S. agency that enforces economic and trade sanctions to support national security and foreign policy.

Receiver

The individual or entity that authorizes an ACH credit or debit to an account they own.

Receiving Depository Financial Institution (RDFI)

The financial institution that receives ACH entries and posts them to its customers’ accounts.

Return / Return Entry

An ACH entry returned to the ODFI by the RDFI with a return reason code.

Reversing File / Entry (Reversal)

A credit or debit entry that reverses a previously erroneous entry or file.

Same-Day Entry

A credit ACH entry eligible for same-day processing, settlement, and limited to $1,000,000 or less.

Settlement

The movement of funds between institutions to finalize transactions.

Settlement Date

The date when actual fund transfer occurs, via the Federal Reserve system.

Settlement Period

The holding period (by ODFI or third party) to allow for returns before final fund release.

Stop Payment Order

A directive from an account holder to prevent a specific ACH transaction from being paid.

Trace Number

A unique identifier assigned by the ODFI to each ACH entry for tracking within the network.

Transaction Code

The two-digit code in an ACH record that identifies the type of account and direction of the transaction.

Third-Party Sender

An intermediary that processes ACH transactions on behalf of an originator. We act as a Third-Party Sender.

WEB ACH

An internet-authorized ACH debit from a consumer account. The WEB code signifies online initiation.