It’s one of the Most Efficient, cost-effective services your bank offers. The Automated Clearing House network—or ACH, for short—has been making life easier for banks and their customers for decades.
ACH is an electronic network that facilitates a colossal number of transactions between financial institutions in the United States. Last year alone, ACH processed more than 21 billion transactions worth a total of $36.9 trillion.
HOW DOES AN ACH TRANSACTION WORK?
An ACH transaction starts when an originator creates a file to debit or credit the bank account of a receiver—or many receivers. A small business, for example, might use ACH to handle its payroll disbursement.
The business would be the originator; the employees would be the receivers.
The originator’s file contains the receivers’ bank routing and account numbers and the amount to debit or credit. This file is sent to the originator’s bank to be processed.
From that point, the file goes to an ACH operator. (For many institutions, the ACH operator is FedLine, which is operated by the Federal Reserve Banks.) The ACH operator distributes the entries in the file to the various receivers’ banks, which then post the credit or debit to the correct account on the appropriate effective date—that is, the date the originator wanted the transaction to be posted.
HOW IS ACH DIFFERENT FROM A TRADITIONAL WIRE TRANSFER? It’s all about speed and cost. Most wire transfers are same-day, and they’re single transactions between one originator and one beneficiary.
ACH transactions flow through the ACH network and are posted on the settlement date specified by the originator. They’re also created in “batch files” that may contain a large number of entries that have to be processed.
But handling ACH transactions normally requires less work on the bank’s end, so the fee for an ACH transaction is usually much less than for a wire transfer.
SOMETIMES, AN ACH TRANSACTION WILL SHOW UP IN MY ACCOUNT THE NEXT DAY. OTHER TIMES, IT CAN TAKE A FEW DAYS. WHAT CAUSES THE DELAY?
An ACH transaction posts to the receiver’s account on the effective entry date that’s specified in the file. Even if it seems to take a few days, it only appears to be that way to the receiver. The transaction is posted the date that is listed in the originator’s file.
IS THERE ANYTHING A BUSINESS CAN DO TO MAKE SURE ITS ACH TRANSACTIONS GO THROUGH MORE QUICKLY?
A company needs to consider the time it takes to process an ACH batch file—and plan accordingly.
At our bank, for example, the latest we can receive an ACH transaction with an effective entry date of the next business day is 5 p.m. the day prior. And that’s assuming there are no outages or delays at the bank’s ACH operator.
That’s why we recommend that an ACH file be submitted at least two business days before the effective date to guarantee that it will be received on the effective date.
