How ACH Payments Work

What does ACH stand for?

ACH stands for Automated Clearing House. The Automated Clearing House is a centralized US financial network for banks and credit unions to send and receive electronic payments and money transfers.

What are ACH payments?

ACH payments are transfers of funds between accounts at different financial institutions, using the ACH network. The ACH network is administered by the National Automated Clearing House Association (Nacha), an independent organization owned by a large group of banks, credit unions, and payment processing companies. Nacha financial institutions provide a way to directly transfer money between accounts at different banks, without the use of paper checks, wire transfers, credit cards, or cash.

How do ACH payments work?

The following institutions are involved in making ACH payments happen:

• National Automated Clearing House Association
  • Nacha is a government-run, nonpartisan organization responsible for operating the ACH network.
• Originating Depository Financial Institution (ODFI)
  • The ODFI is the banking institution that issues the ACH transfer request.
• Receiving Depository Financial Institution (RDFI)
  • The RDFI is the banking institution that receives the ACH request.

The ODFI sends a request to the RDFI to transfer funds. The two banking institutions check in with each other to make sure there are enough funds in the outgoing account, and if there are, the transfer goes forward.

At this point, the ODFI puts together a file with all the key information about the transfer request, including:

• Transaction time (credit or debit)
• Routing numbers
• Account numbers
• Amount to be transferred

The ODFI gathers all ACH transfer requests within a given period of time into a batch and sends the batch of files to an ACH operator, which then sends the files to the RDFI. The bank from which the funds are being withdrawn then releases the funds, which travel via the ACH network to be deposited into the destination account.

The RDFI, despite having “receiving” in its name, is not always the bank that receives the ACH payment funds—it receives a request to initiate funds transfer via the ACH network. The ODFI, the institution where the request for funds originates, often receives the money in the end. Think of “originating” and “receiving” in reference to the ACH request, not the funds themselves.

Nacha bundles all of the transfers going through the ACH network within a given window of time—usually six hours or so during business days—and settles each bundle at multiple intervals throughout the day.

ACH Transfers generally take 3-5 business days to complete and fully settle. They are not instant transactions. If you have a pending deduction or have seen that the money has left your bank account and your invoice is still pending or unpaid, that means we have not received the funds. Once the money is transferred from your account to ours, your payment will be automatically marked as paid.