ACH Glossary

Stands for Automated Clearing House, a network run by Nacha (National Automated Clearing House Association). Since the 1970s, the ACH network has electronically moved money between bank accounts across the United States.

Funds moving through the ACH system that are pushed into an account.

Funds moving through the ACH system that are pulled out of an account.

Used to describe a single transaction submitted to the ACH Network.

ACH fees are the fees associated with payment processing, typically ranging between zero to ten dollars per payment, depending on the specific processor.

The electronic network where ACH Entries are settled between participating depository financial institutions (banks and credit unions).

The “Clearing House” where participating depository financial institutions automatically settle ACH Entries. There are only two: The Federal Reserve (FedACH) and The Clearing House, a network run by the Electronic Payments Network (EPN.

One of 85 possible reasons for disputing (or returning) an ACH Entry. An ACH Return Code must accompany each return that is submitted by the RDFI.

A data security technique used to ensure that the professed sender of information or a payment order is actually who they claim to be.

A written agreement signed by an employee or customer, or an authenticated electronic process, that allows the posting of debits or credits arising from ACH transactions to the employee’s or customer’s account.

In 1970, the US legislation implemented the Bank Secrecy Act (BSA) to prevent criminals from using banks and financial institutions as money-laundering tools. Today, financial institutions are legally responsible for helping US government agencies detect fraud. Some of the measures taken include reporting cash transactions that exceed $10,000, recording cash payments of negotiable instruments, and reporting suspicious activity.

A method of aggregating multiple ACH Entries into “batch” files before they are transmitted between Third-Party Senders, ODFIs, RDFIs, and the ACH Operator, so that many ACH Entries become one.

Any day on which the DFI is open to the public for carrying on substantially all its banking functions.

An individual, sole proprietorship, partnership, or corporation engaged in a commercial enterprise or venture.

Means an account held by a DFI and established by a natural person primarily for personal, family or household and not for commercial purposes.

An automated corporate payments application that transfers funds between corporate accounts for collection purposes or for disbursement purposes. ACH for a business.

A deposit made to a consumer’s account at a receiving depository institution through the ACH. Typically refers to payroll deposits, social security payments and pension payments.

A charge to a receiver’s account at the receiving depository financial institution through ACH. Examples of direct payments include insurance, utility, mortgage, and car payments.

The date the originating business or individual has requested that the entry posts to the receiver’s account.

An alternative means of authorization for ACH transactions. Electronic authorizations must be displayed in such a manner that the consumer can read the authorization, create a record or hard copy of the authorization (so the consumer can refer back to it) and must be authenticated in a similar manner to that in which a signature authenticates a written authorization (i.e., by a digital signature, PIN, or other code which uniquely identifies that consumer).

Any transfer of funds initiated through a terminal, telephone, computer, or magnetic tape for the purpose of instructing or authorizing a financial institution to debit or credit an account.

An electronic sound, symbol or process attached to or logically associated with an agreement, authorization or other record and executed or adopted by a person with the intent to sign the record.

The “central bank” for the U.S. Made up of twelve district banks. All national banks are required to be members. Other institutions can choose to be members.

A group of ACH entries with specific control totals. A file may contain many batches of entries. A file is the smallest unit of information that may be sent to an ACH from an originator or delivered to a receiver. All the information necessary to post transactions is contained within a file.

Similar to FATF, the Financial Crimes Enforcement Network aims to prevent and punish criminals and criminal activity related to money laundering and terrorist financing. Created in 1990, FinCEN is a bureau of the US Department of Treasury and they combat these crimes by collecting and analyzing financial data.

The number used by the originating business to identify the individual being paid (direct deposit) or charged (automatic debits).

KYB stands for Know Your Business, a process that verifies a business's identity and legitimacy to ensure it's safe to do business with. KYB is a due diligence review that helps companies avoid criminals and comply with industry regulations, like Anti-Money Laundering (AML).

Know Your Customer is a set of guidelines that require financial institutions to evaluate customers before entering into a business relationship with them. These guidelines include verifying the identity and risks involved in working with a certain individual.

Stands for “National Automated Clearing House Association”. NACHA is a governing body that establishes and enforces the processes and rules for ACH transactions.

Also known as ACH file format, the NACHA file format is a text file consisting of ASCII text lines, where each line serves as a “record” to execute domestic ACH transfers through NACHA.

Information sent by a receiving institution informing an originating institution and the originating business of an error in the information necessary to handle the transaction electronically. The correct information is included along with the incorrect information to assist the originator in making the change. Notifications of change are commonly referred to as NOCs, however, the standard entry class code for these entries is COR.

The Office of Foreign Assets Control is an agency within the US Department of Treasury that administers and regulates economic and trade sanctions. These sanctions exist to support US national security and protect foreign policies.

An operator (or ACH operator) is the company handling a transaction. The operator is responsible for ensuring the funds reach the receiver. There are only two of these operators that exist: the Electronics Payment Network and FedACH.

A participating financial institution that originates ACH entries. The entries may be originated internally or from an external source, such as a company.

Any individual, business, or other entity that initiates entries into the ACH. There are two originators on one ACH transaction. The first is simply the person or company starting the ACH transaction. The second is the Originating Depository Financial Institution or ODFI. Your ODFI is the bank or place the process begins.

An individual, corporation, or other entity that has authorized a company or an originator to initiate a credit or debit entry to a transaction account held at a receiving financial institution.

The final destination of a transaction. The RDFI may receive entries directly from an ACH or may have their entries processed through a processing center or service bureau, which is the actual receiving point.

An entry that has been returned to the ODFI by the RDFI because it cannot be posted. The reason for each return is included with the return in the form of a “return reason code”.

A credit or debit Entry that reverses an Erroneous Entry, or a file that reverses all Entries in an Erroneous File.

An Entry, other than a debit Entry, in which the Effective Entry Date is the same Banking Day as the date on which the Entry is Transmitted by the ODFI to its ACH Operator by the deadline for same-day processing and settlement. A Same Day Entry must be for an amount of $1,000,000 or less.

The transfer of funds between two parties in cash, or on the books of a mutual depository institution, to complete one or more prior transactions made subject to final accounting.

The day on which actual funds settlement occurs. Funds settle in all cases through the Federal Reserve settlement system either directly or indirectly through a correspondent account.

Also referred to as “Settlement Time”. A predetermined number of days that Debit funds are held by the ODFI or the Third-Party Sender, to account for funds that may be returned to the RDFI.

A directive by an account holder to its financial institution not to pay a particular ACH transaction.

An intermediary, also known as a Third-Party Processor, between the Originator and the ODFI that processes ACH transaction data on the Originator’s behalf.

A unique number assigned to every ACH entry by an Originating Depository Financial Institution which identifies that entry within a specific ACH file. The first 8 digits of the trace number are the transit/routing number of the ODFI and the last 7 digits are sequence numbers assigned by the originator.

Also known as a Tran code, this is the two digit code in the ACH record that determines whether an entry is a debit or a credit to a savings, DDA, general ledger, or loan account.

An online-initiated ACH transaction that a consumer authorizes to debit their bank account. The WEB code indicates that the transaction was authorized over the internet.