subject: Ach Processing - The System [print this page] ACH processing happens through a series of steps. It is an electronic system that involves moving payments or credits from one account to another. It is used by both individuals and businesses to make all sorts of payments including direct deposits, insurance premiums and other recurring fees. It is a system that has evolved and developed over the course of a few decades into the efficient machine it is today.
It all starts with a Receiver. This is the holder of an account that is seeking to allow a payment or credit of some sort to happen. This person, business or organization grants permission to an Originator to make an electronic credit or debit to a specified account. An Originator may be an individual or a business or an employer of some type. This authorization step is critical as that no transaction can take place without it according to the regulations of the process. The permission itself could take a few different forms. It could be written, verbal or electronic. Different forms are appropriate in different situations. Documentation is created in any case, including verbal. An audio recording is made or a receipt is generated in these cases. Electronic agreements include some type of statement of understanding of terms.
After the authorization step is completed, the next task in ACH processing is to create and entry which is passed to an Originating Depository Financial Institution, usually referred to by the acronym ODFI. This can be any member institution. The entry makes its way to an operator and then to the Receiving Depository Financial Institution usually referred to by the acronym RDFI. It is there that the Receiver's account is affected with either a payment or credit. This part of the process does not always occur uninterrupted. The RDFI may reject and return the transaction back to the ODFI. This may happen, for example, in the case of an account with insufficient funds.
The ACH processing may seem complicated. However, the system is customarily very efficient and timely. There are also prescribed times for pieces of the process as well. In the case of the RDFI rejecting a transaction, the redirection back to the ODFI must happen in a set amount of time. This time period is set in the 2-60 day range. Rarely does a return take more than a day or two. The payment may be attempted two more times by the ODFI after which it becomes null.
