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The ACH Network is a processing and delivery system that provides for the distribution and settlement of electronic credits and debits among financial institutions. The National Automated Clearing House (NACHA) is responsible for maintaining and policing the electronic payments network commonly referred to as the Automated Clearing House (ACH). For years, the most notable electronic payment program offered was Direct Deposit.

Electronic Payment Growth

Direct Deposit and Direct Payment
Direct Deposit is still the most widely used ACH payment. Direct Deposit is used for payroll, expense and travel reimbursement, pension and annuity payments, interest payments, retirement and mutual fund distributions, Social Security, Veterans and other government benefits, and tax refunds. The average dollar amount of a Direct Deposit was $1,263. NACHA estimates that more than 71 percent of the private-sector workforce in the U.S. uses Direct Deposit to get paid.

A Direct Payment is a pre-authorized debit that uses the ACH Network, and is typically used for recurring consumer bills such as mortgages, loans, utilities, investments and charitable contributions. The average dollar value of a Direct Payment was $759.

Financial EDI and B2B Payments
Financial electronic data interchange (EDI) on the ACH Network continues to grow at a steady pace. In 2005 there were 552 million EDI-formatted remittance records accompanying ACH payments. Financial EDI is the electronic exchange of payments, payment-related information or financial-related documents in standard formats between business partners.

These payments include payments among trading partners, intra-company cash management transfers, government vendor payments, as well as business-to-government tax withholdings. The dollar value of these payments accounts for 69 percent of all ACH payment dollars.

New Initiatives

ACH Transaction Flow

The ACH record format specifications described in the NACHA Operating Rules and Guidelines are the accepted and warranted payment format standards for payments delivered through the ACH.

Direct Deposit is the electronic transfer of a payment from a company or organization into the checking or savings account of employees, retirees, taxpayers, vendors or shareholders. The payment can be divided among several different accounts and, in many cases, between different financial institutions.

The most popular application of Direct Deposit is for payroll, but it can also be used for many other types of payments, including:

  •  Annuities
  •  Bonuses and commissions
  •  Dividend and interest payments
  •  Pensions
  •  Travel expense settlements
  •  Vendor Payments
  •  Tax refunds
  •  Social Security or other government payment

ACH payments include Direct Deposit of payroll, Social Security benefits and tax refunds. Direct Payment of consumer bills, e-checks, business-to-business payments, and Federal tax withholdings. The nation’s financial institutions and its customers experience billions of dollars in benefits annually due to ACH payments.

ACH Credit Flow

Direct Payment also known as automatic bill payment, automatic debit, electronic bill payment or direct debit can be used for many types of recurring payments, including:

  •  Mortgage
  •  Insurance
  •  Investments & Saving Plans
  •  Car Loans
  •  Newspaper/Magazine Subscriptions
  •  Utilities
  •  Cable TV
  •  Health Clubs
  •  Credit Cards
  •  Donations and Contributions to Non-Profits

ACH Debit Flow

Commonly Used ACH Formats

Cash Concentration or Disbursements (CCD)
The CCD payment format is the only format that does not allow addenda records. Because remittance data is not transmitted with the payment, you will need to use an additional method to transmit remittance information.

Cash Concentration or Disbursement Plus Addenda (CCD+)
The CCD+ format is identical to the CCD format with the addition of one addenda record. Part of the addenda record contains a payment related information field of 80 characters in which data segments can be used.

Corporate Trade Payments
The Corporate Trade Payment (CTX) format was developed to permit the transmission of remittance information. CTX allows for up to 9,999 addenda records. CTX addenda records contain free form information that can accommodate the full EDI 820 Transaction Set or a subset of its segments.

RCK POP ACR Reference Guide

Tax Payments
Electronic tax payment programs usually offer two options, ACH debit or ACH Credit. An ACH Credit is an electronic funds transfer transaction in which the business authorizes its financial institution to send funds to the revenues department's account, allowing the business to initiate ACH credit transfers. You must set up this option with your bank. You are responsible to ensure your payment is received by the tax entity by the due date.

An ACH Debit is an electronic transaction in which the business authorizes the tax department's financial institution to withdraw funds from the business' account and deposit them into the department's account. The business initiates and specifies the amount and date of the withdrawal by calling a toll-free number at the Taxing body.

International ACH
As global business is expanding, the Federal Reserve Banks are keeping pace with customer demand for low-cost, efficient cross-border payments. FedGlobal ACH Payments deliver a wide range of payment options to help meet this demand, combining convenient access with robust customer support.

Regulation E prevents a company from initiating unauthorized debits from the consumers account. It also prohibits a biller from taking money from a checking or savings account before the specified date. In addition, the consumer's financial institution protects personal account information.

Federal Regulations
Title 12: Banks and Banking
Part 205 - Electronic Fund Transfers (Regulation E)

Regs issued by the Board of Governors of the Federal Reserve System pursuant to the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.).
This part carries out the purposes of the Electronic Fund Transfer Act, which establishes the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer services and of financial institutions that offer these services.

e-Check
e-checks are payments originated by a consumer as a paper check. Through various ACH programs these paper items are converted into an electronic item.

Audio descriptions by:
AnalyticResults

Accounts Receivable (ARC) (mp3 audio)
An ACH debit transaction in lieu of consumer checks that are truncated after being received through the U.S. mail or drop box location.

  •   Check mailed for payment or dropped at unmanned drop-box
  •   Consumer, first party checks
  •   No dollar limit
  •   Notification is provided prior to writing check
  •   Check destroyed within 14 days, 2 year retention of copy
  •   Once check is converted, it cannot be presented for payment
  •   Original item must be destroyed and image maintained
  •   Image cannot be presented for payment
  •   This is not check collection

Represented Check Entries (RCK) (mp3 audio)
A debit transaction in place of a paper check after the paper item has been returned for insufficient or uncollected funds.

  •   Check returned for insufficient (NSF) or uncollected funds.
  •   Consumer, first party checks
  •   Checks less than $2,500
  •   Contains pre-printed number
  •   Notification prior to writing check
  •   No retention requirement, 7 year retention of copy
  •   Total of 3 presentments allowed
  •   Originator is required to be party to the debt
  •   Check collection laws pertain
  •   Written authorization is required for a fee
  •   Clear authorization language stamped on the check is OK
  •   The signature on the check is not authorization for a fee

Point of Purchase (POP) (mp3 audio)
One-time ACH debit entry to a Receiver's account for purchases made in-person at the point-of sale.

  •   Check writer is present
  •   Consumer, first party checks
  •   No dollar limit
  •   Check can only be used one time
  •   Consumer signs an authorization
  •   A receipt with specific information is given to consumer
  •   Consumer must sign authorization
  •   Check must be returned to consumer
  •   Identify consumer for collection
  •   Lack of evidence for prosecution
  •   This is not check collection

The Buyers Guide list many vendors that support and sell ACH services.

Corporations originating large volumes of ACH transactions need to be aware of a rather complex set of association rules and regulations. Each year NACH publishes the definitive source for rules & regulations governing the ACH Network, Also included are: the Federal Reserve Uniform Operating Circular, Regulation E and Official Staff Commentary, Electronic Funds Transfer Act, Federal Tax Deposit Payments and Title 31 CFR Parts 208 and 210. Price includes updates throughout the year. ACH RULES

The Council for Electronic Billing and Payment, a sub-group of NACHA, has a number of publications to help corporations with their B2B electronic payment options:

Business-to-Business EIPP: Presentment Models and Payment Options
This 2-part document provides an objective, educational tool about Internet-based Electronic Invoice Presentment and Payment (EIPP) in business-to-business transactions. "Presentment Models" describes the current and emerging invoice presentment models, including Seller Direct, Buyer Direct, and Consolidator. "Payment Options" analyzes the B2B payment options currently available to B2B payers, including ACH, MasterCard RPPS, Visa ePay, Credit Cards, Check, and Wire Transfers.

More on electronic bill payment