ACH payment processing operates via the ACH network. Every ACH transaction goes through a seven-step process involving six ACH payment processor entities. These entities include the originator, the receiver, the originating depository financial institution (ODFI), the receiving depository financial institution (RDFI), an ACH operator and the National Automated Clearing House Association (NACHA).
Below, we define each entity involved and the technical steps to ACH payment processing.
While these steps specify an ACH credit payment, the same steps occur for a debit payment and all the ACH payment processor entities are involved. It is also important to note that although NACHA is not explicitly noted in any of the steps above, it dictates the process and oversees each transaction in the ACH network.
Compared to traditional paper checks, ACH payment processing offers several benefits for both originators and receivers.
Because ACH is electronic, it’s a cheaper and more environmentally friendly option. These types of payments also offer faster deposit verification, meaning that as a receiver, you get paid faster. Instead of a seven-to-10 day waiting period for paper checks to clear, ACH transactions can be deposited as quickly as one day.
Lastly, because ACH processing is managed by NACHA, you receive alerts of rejects or notifications of change (NOCs) faster, which means less time between the initial payment and the notifications of delays.
Still accepting paper checks? What hesitations do you have about switching to ACH payment processing? Tell us below, we’re happy to address your concerns.
Editor's Note: This post was originally published in October 2018 and has been updated for comprehensiveness and accuracy.