ACH, also referred to as automated clearing house, is an electronic network that facilitates payment transactions in the United States. Through ACH processing, large businesses are able to process batches of credit and debit card transactions.
Automated Clearing House explained
ACH was first developed in the 1970s as a method of decreasing the large volumes of paper cheques in circulation. Most businesses and consumers were utilizing the traditional form of cheques to pay for goods and services, however this was causing extended periods of lag time in between payments being made and processed. Through the development of specialized software, the US was able to implement ACH as a method of transacting credit and debit card payments online.
This online network allows the processing of a large number of card transactions which are being carried out at the same time. Through clearing and settling a number of payments on an electronic network, businesses and consumers are able to conduct payment transactions efficiently and instantly.
The main purpose of ACH was to improve cash flow in a cost effective manner. There is a range of ACH debit transfers which can be used by merchants, some of these include but are not limited to; consumer payments, mortgage loans and point-of-purchase. There is also a variety of ACH credit transfers which include but are not limited to; direct deposit payroll and vendor payments.
NACHA (National Automated Clearing House Association) is the governing body responsible for providing the rules and regulations for the ACH network, in line with the regulations laid down by the Federal Reserve.