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What is ACH?

ACH = Automated Clearing House

ACH stands for Automated Clearing House. It is a method used for electronic funds transfer (EFT). The system was developed in the '70s by the U.S. banking industry to replace paper checks and expedite payment transactions. The ACH system supports credit and debit transactions. In the case of an ACH debit transaction, funds are electronically withdrawn from a customer's bank account to pay for the purchase of a product or service.

Due to the massive daily volumes of ACH credit and debit transactions in the U.S., ACH processing is becoming the new standard for online payments. The most common uses are direct deposit payments of bills and recurring payments. More than half of all U.S. households have at least one recurring transaction that uses ACH. Both the government and commercial sectors use ACH payments. Businesses are increasingly using ACH to collect payments from online customers rather than accepting credit or debit cards.

  • An ACH credit transaction is a payment from the merchant to the customer (e.g. refund/payout).
  • An ACH debit transaction is a payment from the customer to the merchant (e. g. collection for goods/services).

What is NACHA?

NACHA is the Electronic Payments Association (formerly known as the National Automated Clearing House Association) which manages the development and administration of the ACH Network. Rules and regulations are established by NACHA and the Federal Reserve. In recent years, the ACH network has processed over 19 billion transactions involving native electronic payments - direct deposit, consumer Internet transactions, and B2B transactions. Direct deposit increased 5%, B2B payments increased 3% and consumer Internet transactions were up 9%.

How does ACH processing work?

An ACH transaction starts with you, the merchant, receiving authorization from your customer to pay for some products or services. Once the authorization is received, your website forwards the transaction details to Payment21®. Our system will immediately create the ACH entry and send it to a U.S. financial institution. If an ACH transaction is rejected for some reason, you are notified by a return code. If a transaction is cleared, the total amount of this transaction is credited to the merchant's account at the same time as the bank account of the check writer is debited.

How can merchants use ACH?

Once a merchant receives authorization from its customer and forwards the payment instruction to Payment21®, we have permission to electronically debit U.S. checking and savings accounts. With our secure, reliable and easy-to-use software, you can immediately set up a merchant account with Payment21® and begin ACH processing.

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