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What is the ACH Network?

The Automated Clearing House (ACH) Network is an electronic payments network used by individuals, businesses, financial institutions, and government organizations. It allows funds to be electronically debited or credited to checking accounts, savings accounts, financial institution general ledger accounts, or loan accounts.
The ACH Network serves as the backbone for electronic money movement and related data, providing a safe, secure, and reliable network for direct consumer, business, and government payments.
The ACH Network operates as a same-day, batch processing, store-and-forward system. Financial institutions store transactions throughout the day and process them at specified times in batch mode. The network exchanges funds and payment-related information throughout the United States, its territories, and internationally.

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ACH participants

Five key participants contribute to the successful completion of an ACH transaction. Understanding each participant’s role helps financial institutions better understand their position in the system.

Originator

The company or business authorized by the Receiver to credit or debit an account. Originators initiate both credit transactions (like payroll) and debit transactions (like bill payments).

Receiver

An individual or company that has authorized the Originator to credit or debit their account. This could be an employee receiving payroll or a business partner receiving payment.

ODFI

The Originating Depository Financial Institution has a contractual relationship with the Originator for ACH services and sends ACH entries into the network on the Originator’s behalf.

RDFI

The Receiving Depository Financial Institution maintains the Receiver’s account relationship and posts ACH entries to the Receiver’s account.

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Authorization requirements

Authorization is a key component of an ACH transaction, giving the Originator authority to send credit or debit transactions to the Receiver’s account. The authorization method varies based on transaction type.
For detailed information about obtaining proper authorization, see our Payment Authorization Guide which covers specific requirements for SEC codes and different payment types.

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ODFI responsibilities and liability

The ODFI carries the greatest liability of all ACH Network participants through warranties outlined in the ACH Rules. The contractual relationship between the Originator and ODFI outlines rights and responsibilities and provides the ODFI with mechanisms to pass appropriate liabilities to the Originator. Example: The ODFI warrants that transactions are properly authorized, yet the Originator obtains and maintains this authorization. Therefore, the agreement between Originator and ODFI must address the Originator’s authorization responsibilities.

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ACH Operator

The ACH Operator serves as the central clearing facility for ACH transactions. Key responsibilities include:
  • Accepting ACH entry files from ODFIs
  • Sorting, batching, and forwarding entries to the Receiver’s financial institution
  • Performing editing functions to ensure mandatory information is included
Two ACH Operators currently exist: the Federal Reserve Bank and EPN (Electronic Payments Network).

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RDFI responsibilities

The Receiving Depository Financial Institution has several primary responsibilities:
  • Post ACH entries to the Receiver’s account
  • Make funds available for credit entries or debit accounts on the Settlement Date
  • Provide transaction information to Receivers on their statements
  • Return ACH entries within specified timeframes when transactions cannot be posted

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Additional network participants

Third-Party Service Provider: A party that performs ACH processing functions on behalf of the Originator, ODFI, or RDFI. Payroll processors are common examples. Third-Party Sender (TPS): An entity with a contractual relationship with an ODFI to transmit debits or credits to a Receiver’s account on behalf of the Originator, specifically when there’s no direct agreement between the Originator and ODFI.
To distinguish between Third-Party Service Providers and Third-Party Senders: if the Originator has an agreement with an ODFI and uses a payroll processor to create ACH files, the processor is a Service Provider. If the Originator contracts with the payroll processor who then sends files through their own financial institution, the processor is a Third-Party Sender.

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How the ACH Network functions

The ACH Network operates through a systematic process involving all participants. For a more detailed explanation of this process, see How does ACH work?.
1

Authorization and initiation

The Originator obtains authorization to initiate a transaction or provides notice to the Receiver that a transaction will be initiated.
2

File creation and submission

The Originator creates an ACH transaction file and presents it to their ODFI.
3

ODFI processing

The ODFI collects ACH files from Originators, verifies file validity, and transmits files to the ACH Operator at specified times. The ODFI may consolidate individual files into larger batches and retain “on-us” entries for their own account holders.
4

ACH Operator processing

The ACH Operator receives files from ODFIs, edits them for proper formatting, and distributes entry files to the appropriate RDFI.
5

Final posting

The RDFI receives entry files from the ACH Operator and posts entries based on Settlement Date and account number. Receivers get periodic statements with descriptive transaction information including date, amount, Originator name, and transaction description.

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ACH funds settlement

Settlement represents the actual transfer of funds between financial institutions to complete ACH entry payment instructions.
ACH settlement can only occur on banking days. The Federal Reserve Bank provides settlement services for both the Federal Reserve ACH Operator and private sector ACH Operators (currently only EPN).

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Settlement timing and dates

The Federal Reserve Bank calculates net debit and credit positions of financial institutions and applies those debits or credits to the institution’s account or their correspondent financial institution’s account. Settlement timing depends on:
  • Effective Entry Date: The date the Originator intends for entries to post to Receiver accounts
  • Delivery time: When the file reaches the ACH Operator
When the ACH Operator processes an ACH file, it reads the Effective Entry Date and assigns a Settlement Date. In most cases, the Settlement Date matches the Effective Entry Date, but the Settlement Date could occur after the Effective Entry Date if:
  • File delivery is untimely
  • The date is stale
  • The Effective Entry Date falls on a weekend or holiday

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Processing timeframes

Since inception, the ACH Network’s standard settlement period has been one to two business days after processing:
  • Debit entries: Can be sent one day in advance of the Effective Entry Date
  • Credit entries: Can be sent up to two days in advance of the Effective Entry Date