How the Automated Clearing House System Works
An automated clearinghouse is a facility used by financial institutions to distribute electronic debit and credit entries. Under the automated clearinghouse system which operates in the United States, banks exchange checks and drafts drawn upon each other and settle their daily balances using the system developed for this process.
Electronic payments of various kinds are used frequently as a safe, reliable and convenient way to make and receive payments. In the United States, ACH payments are electronic payments made through the Automated Clearing House network. The ACH network is a highly reliable and efficient nationwide electronic funds transfer system governed by the NACHA operating rules that provide for the inter-bank clearing of electronic payments for more than 12,000 participating depository financial institutions. The National Automated Clearinghouse Association is a non-profit membership association charged with overseeing the Automated Clearing House (ACH) system. NACHA also works closely with government agencies to ensure the integrity of the electronic payments systems used by banks and other depository institutions.
The ACH network is used to process high volumes of relatively small-dollar payments for settlement within one to two business days. Automated Clearinghouse transactions are settled in a similar way to checks. The clearinghouse takes all the ACH files received daily from member banks. It sorts them based on where they originated and where they are to be deposited. The ACH totals the transfers, and credits or deducts the banks accounts accordingly. Creditor companies benefit from receiving ACH payments. ACH payments eliminate the need for customers to write and mail checks in payment of balances owed to credits. ACH payments are deposited into the creditor's account more quickly and more reliably.
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