ACH

ACH overview

The Automated Clearing House (ACH) is a widely used electronic network for processing low-value transactions in the United States. ACH enables the transfer of funds between financial institutions, allowing both credit and debit transactions. It is governed by NACHA (National Automated Clearing House Association), which sets the rules and standards for participation in the ACH network.

Key Participants:

Originating Depository Financial Institution (ODFI): The institution that initiates the ACH transaction.
Receiving Depository Financial Institution (RDFI): The institution receiving the funds.
Clearinghouse: Intermediary that facilitates the clearing and settlement of transactions.

ACH direction

ACH Credit: The originator "pushes" funds to the recipient (e.g., payroll, refunds, vendor payments).
ACH Debit: The originator "pulls" funds from the recipient's account (e.g., bill payments, loans, subscriptions).

SEC codes

This list of Standard Entry Class (SEC) Codes covers the various types of ACH transactions and their intended uses, helping both businesses and financial institutions ensure compliance and accurate processing. Each SEC code dictates specific processing rules, including the required data fields, authorization methods, and settlement timelines. Businesses must select the correct SEC code for each transaction to ensure proper processing and regulatory compliance.

Common SEC Codes include:
PPD (Prearranged Payment and Deposit): Used for consumer transactions like direct deposits (payroll) and recurring bill payments (e.g., utility bills).

CCD (Corporate Credit or Debit): Used for business-to-business transactions, including payments like vendor bills or corporate payroll.

WEB (Internet-Initiated/Mobile Entry): For consumer payments initiated over the internet. This is commonly used for online bill payments or e-commerce transactions.

TEL (Telephone-Initiated Entry): Used for consumer payments authorized over the phone. It’s common for call centers or businesses that accept payments via telephone.

IAT (International ACH Transaction): For ACH entries involving a financial institution outside of the United States. It requires additional information due to international banking regulations.

ACH workflow

ACH transactions go through various stages during processing. Understanding these statuses can help track progress and identify any potential issues. The processingStatus of an ACH include:

INITIATED: The transaction is created but not yet submitted.

SUBMITTED: The transaction is being prepared and submitted to a settlement batch

SENT: The transaction has been submitted to the ACH operator.

MANUAL_REVIEW: The transaction is being reviewed by financial institution for compliance or operations reasons.

RETURNED: The transaction was returned by the RDFI for reasons such as insufficient funds or unauthorized debit.

CANCELED: The transaction was canceled before submission.

REJECTED: The transaction was rejected due to incorrect or incomplete data.

Timing and Settlement

ACH submissions are processed in multiple daily windows, so understanding the cut-off times for same-day vs. standard ACH is essential for timing funds transfers. You can specify SAME_DAY or STANDARD option in the ACH endpoints.

Same-Day ACH
Must be submitted before the midday cut-off to settle within the same business day.
Offers faster settlement for urgent transactions, but requires adherence to strict submission windows.

Standard ACH
Transactions settle on the next business day if submitted after the same-day window or if processed under the standard timing schedule.

Processing window and cut-off time

Federal reserve bank publish ACH processing schedule. Your bank will usually require a cut-off time ahead of the operator cut-off time for processing. Contact your bank for details regarding settlement schedule and cut-off time for your program.

ACH Returns

ACH transactions may be returned by RDFI due to errors or specific issues. Returns must be processed promptly, usually within 2 business days (corporate accounts) or up to 60 calendar days (consumer accounts), for details please refer to Nacha rules.

Common Return Codes:

R01: Insufficient funds.
R02: Account closed.
R03: No account/unable to locate account.
R04: Invalid account number.
R05: Unauthorized debit to consumer account.
R06: ODFI requested return.
R07: Authorization revoked by customer.
R08: Payment stopped by customer.
R09: Uncollected funds.
R10: Customer advises that the transaction is unauthorized.
R11: Transaction not within authorization terms.
R12: Account sold to another financial institution.
R13: Invalid routing number.
R14: Representative payee deceased.
R15: Beneficiary or account holder deceased.
R16: Account frozen.
R17: File record edit criteria.
R18: Improper effective entry date.
R19: Amount field error.
R20: Non-transaction account.
R21: Invalid company identification.
R22: Invalid individual ID number.
R23: Credit entry refused by receiver.
R24: Duplicate entry.
R25: Addenda error.
R26: Mandatory field error.
R27: Trace number error.
R29: Corporate customer advises not authorized.
R31: Permissible return entry (CCD and CTX only).
R32: RDFI non-settlement.
R33: Return of XCK entry (destroyed check).
R34: Limited participation DFI.
R35: Return of improper debit entry.
R36: Return of improper credit entry.
R37: Source document presented for payment.
R38: Stop payment on source document.
R39: Improper source document.
R51: Item ineligible, notice not provided.
R52: Stop payment on item.
R53: Item and ACH entry presented for payment.