Automated clearing house

An automated clearing house is a computer-based electronic network for processing transactions, usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits.

What is ACH?

The ACH Network processes electronic financial transactions – such as Direct Deposit and Direct Payments – for consumers, businesses, and federal, state and local governments.

In batches, ACHs process high numbers of credit and debit transactions. Direct deposits, payrolls, retail payments, and vendor payments are examples of ACH credit transfers that are initiated by the payer. [5] The payee initiates ACH direct debit collections with pre-authorization from the payer; ACH direct debits include consumer payments such as utility bills, insurance premiums, mortgage loans, and other sorts of invoices. [5] During the day, the bank receives transactions, which are kept and sent to the ACH in batches. Because ACHs are net settlement systems, settlement might take days and there is some risk involved. ACHs may allow the transmission of a small amount of supplementary data in addition to payment instructions.
ACH payments contrast with real-time gross settlement (RTGS) payments which are processed immediately by the central RTGS system and not subject to any waiting period on a one-to-one basis. ACH systems are typically used for low-value, non-urgent transactions while RTGS systems are typically used for high-value, urgent transactions.