What is ACH

Automated Clearing House (ACH) is an electronic network for financial transactions in the United States. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit, payroll and vendor payments. ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills. Debit transfers also include new applications such as the point-of-purchase (POP) check conversion pilot program sponsored by the National Automated Clearing House Association (NACHA). Both the government and the commercial sectors use ACH payments. Businesses increasingly use ACH online to have customers pay, rather than via credit or debit cards.

source: Automated Clearing House

How does ACH work?

NACHA includes Members in the process of establishing Rules for the ACH Network, working collaboratively to create a clear picture of participant roles and responsibilities in the following ACH transaction process.

  1. An Originator– whether that’s an individual, a corporation or another entity– initiates either a Direct Deposit or Direct Payment transaction using the ACH Network. ACH transactions can be either debit or credit payments and commonly include Direct Deposit of payroll, government and Social Security benefits, mortgage and bill payments, online banking payments, person-to-person (P2P) and business-to-business (B2B) payments, to name a few.
  2. Instead of using paper checks, ACH entries are entered and transmitted electronically, making transactions quicker, safer and easier.
  3. The Originating Depository Financial institution (ODFI) enters the ACH entry at the request of the Originator.
  4. The ODFI aggregates payments from customers and transmits them in batches at regular, predetermined intervals to an ACH Operator.
  5. ACH Operators (two central clearing facilities: The Federal Reserve or The Clearing House) receive batches of ACH entries from the ODFI.
  6. The ACH transactions are sorted and made available by the ACH Operator to the Receiving Depository Financial Institution (RDFI).
  7. The Receiver’s account is debited or credited by the RDFI, according to the type of ACH entry. Individuals, businesses and other entities can all be Receivers.
  8. Each ACH credit transaction settles in one to two business days, and each debit transaction settles in just one business day, as per the Rules.

source: ACH Network: How it Works

Developer Overview

Gusto has provided a great technical overview of how ACH works for developers

What is X9

X9’s Specifications for ICL (Image Cash ledger) to provide Check 21 services is designed to enable banks to handle more checks electronically, which should make check processing faster and more efficient. Traditionally, banks often physically move original paper checks from the bank where the checks are deposited to the bank that pays them. This transportation can be inefficient and costly.

source: FDIC Check 21

How Does Check21 Work

Check 21 affects check writers and depositors in the following ways:

  • If you are used to getting your canceled checks back to you when you get your account statement, you may now be getting a "substitute" check. A substitute check is a high-quality paper reproduction of both sides of the original check. A substitute check is a legal equivalent of the original check.
  • It is more important than ever to avoid bouncing checks. A check deposited in a bank generally travels by airplane and truck until it reaches the paying bank, typically about one or two days later. As a result of Check 21, more checks will be processed electronically... and faster!
  • Check 21 does not require your bank to return your original check to you. However, Check 21 ensures that you have the same legal protections when you receive a substitute check from your bank as you do when you receive an original check.
  • If you notice a problem with a substitute check, you should contact your bank as soon as possible. Check 21 provides a special process that allows you to claim a refund when you receive a substitute check from a bank and you think there is an error because of the substitute check. In general, you should contact your bank no later than 40 days from the date your bank provided the substitute check or from the date of the statement that shows the problem.

FRB: Frequently Asked Questions about Check 21 and Substitute Checks

source: FDIC Check 21