ACH Glossary

ACH

The Automated Clearing House is an electronic payment Network that exchanges funds via Electronic Funds Transfer (EFT) throughout the U.S. fifty states and territories. Over 98% of the nation’s banks including the Federal Reserve belong to the ACH.

ACH Operator

The central clearing facility operated by a private organization or a Federal Reserve Bank on behalf of participating financial institutions, to or from which financial institutions transmit or receive ACH entries.

ACH Associations

Provide rules and guideline for the efficient operation of the ACH Network. There are 36 regional ACH associations whose memberships include financial institutions and affiliates. NACHA, the National Automated Clearing House Association forms the governing foundation for the regional associations.

Addenda Record

A record of information that may be attached to a detail entry record containing additional payment information (i.e., EDI messages, change and return information).

Authorization

Refers to the authorization of an ACH transaction by a consumer or company. Most authorizations must be in writing and must be retained for a period of two years. There are 3 types: recurring, non-recurring, one-time.

Cash Concentration

Companies that have decentralized units use the ACH to concentrate cash into a centralized bank account – replaces wire transfer.

Check Truncation

Stopping or truncating a paper check by turning it into an electronic item at the Point of Sale (POS or POP) or in lockbox check truncation.

Corporate Payments

Business to business ACH Network collection and disbursement of funds. The Federal government is mandating this form of payment for corporate taxes and payments to government vendors.

Direct Deposits

Is the disbursement of funds to consumer accounts. Includes payroll, interest, trust disbursements, expense payments, dividends, pension payments, etc. This is the most widely used ACH service.

Direct Payment

The collection of funds from consumer of business accounts. This normally would be used to collect payments for monthly dues as in: health club membership, rent, phone, utility bills, newspaper bills, trash collection, mortgage payments, lease payments, etc.

Electronic Check Representment

An ACH Network service that allows for the electronic re-presentment of a returned paper check marked non-sufficient funds (NSF). Provided that certain guidelines are fulfilled the check can be collected electronically.

EFT

Electronic Funds Transfer is the transfer of funds from one bank account to another bank account utilizing the ACH Network.

Effective/Settlement Agent

The date an Originator enters on an ACH file to indicate the date they intend the transactions to post ( effective date ); and the date entries actually settle through the ACH Operator, as affected by the timing of delivery for processing.

Internet Initiated Entries

(WEB) a consumer authorizes a Receiver or Merchant to debit their account via the Internet.

Lockbox Check Truncation

Also called Accounts Receivable Conversion (ARC) is the process of turning checks received in the mail by a company or institution into electronic items.

Originating Deposit Financial Institution ODFI

The financial institution that deposits ACH files, on behalf of the Originator, into the ACH network.

Originator

Company or individual that initiates an ACH transaction according to an arrangement with a Receiver .

Original Entry

A debit or credit ACH transaction directed to an account at an RDFI.

NACHA

The National Automated Clearing House Association is the chief rules making and interpretation body of the ACH. NACHA is the cooperative governing body for 36 regional ACH associations.

Non-Recurrent Payment Authorization

An individual or company authorizes the debit of their account for a varying period and/or amount. Notification must be sent 10 days before the effective date with the amount to be debited.

Notification of Change (NOC)

Notification of Change is an advice from an RDFI to an ODFI that entry information requires corrections and includes the correction details. A payment message returned by the RDFI via the ACH network, which supplies data to the ODFI for the correction of payment information.

NSF Check

A paper check that has been returned by the banking system due to Non Sufficient Funds. These can be electronically represented through the ACH Network using Electronic Check Re-presentment.

One Time Payment Authorization

An individual or company authorizes a one-time debit of their account. The authorization is usually a written authorization but in some instances a recorded telephonic authorization may be used.

Pre-Notifications

A zero dollar entry sent prior to the first live entry to notify the RDFI of future payments and test account information. (Optional)

POS

Point of Sale is a term used to describe an ACH transaction at the time of purchase – for example at the supermarket check out counter.

RCK

Refers to Returned Check and represents the electronic check process for electronic re-presentment of paper NSF checks – Electronic Check Re-presentment.

RDFI

The Receiving Depository financial Institution, the financial institution that receives an ACH transaction for a holder of an account.

Receiving Deposit Financial Institution

The financial institution that receives ACH entries from the ACH Operator and posts the entries to the account of its depositors (Receivers).

Recurring Payment Authorization

An individual or company authorizes the periodic debit of their account for the same period and amount.

Return Entry

The return of an original entry that either could not be posted or was not able to be identified by the RDFI – closed account, NSF, wrong account number, etc.

Return Reason Codes

Or R Codes are rejections of original ACH entries by the RDFI.

Receiver

Natural person or organization that has authorized the Originator to initiate an ACH entry to the Receiver’s account with the RDFI.

Standard Entry Class Codes

Three character code, such as Prearranged Payments or Deposits (PPD), used in an ACH header record to indicate the ACH format being used and to identify entries for proper application of rules.

TEL

Telephone Initiated Entry

Telephone initiated Entry

(TEL) is an entry initiated through a telephone authorization for a onetime debit for collection of funds for payment of goods and services. A TEL is valid only when there is an existing relationship between the parties or if no existing relationship, the consumer initiates the telephone call.

Transaction Code

Two-digit code that indicates whether an entry is a debit or credit to a checking, savings, loan or financial institution general ledger account.

Truncation

In ACH it normally refers to stopping or truncating a paper check as in POS or lockbox check truncation and turning that paper check into an electronic item

Third Party Processors

Processors that participate between any relationship within the ACH processing flow (i.e., correspondents, sending-point processors or payroll processors).