ACH what is it? How Does it Work? Do you know what ACH payment means? These are just some of the biggest questions asked by those who need to understand more about interbank transactions in the United States.
In this issue you will learn in detail about the function of ACH in the US as well as how banking transaction processing works there.
ACH what is it?
The term ACH is an acronym for “Automated Clearing House”. In free translation it is more common to hear the term Automated Clearing House.
The ACH is nothing more than a board created to handle matters related to bank clearing in the United States.
NACHA (National Automated Clearing House Association) is the regulatory and organizing body of the ACH network.
Transactions known in Brazil as DOC and TED are equivalent to the transactions made by banks in the USA through the ACH.
It is through the ACH that banks can process such transactions between themselves in the country.
ACH PAYMENT, WHAT DOES IT MEAN?
ACH payment is a type of electronic payment that takes place between banks in the United States.
As already stated, it is the ACH network that makes such transactions possible, ensuring reliability and consistency of banking information.
Also called ACH transfer or ACH transaction, ACH payment is the unified way of interbank transfers, rather than going through the large card networks like Visa or Mastercard, for example.
This ACH network is not new, being responsible for processing payments since 1970 in the USA.
Over $61.9 trillion was handled in financial transactions in the year 2020. This represented 11% growth with respect to the year before this period (2019).
Transactions of different types are within this stratospheric number: from citizen and business-to-business moves, as well as international payments and government transactions.
If you want to start a business in the US, it is necessary to understand about ACH what it is.
Now understand a little more about ACH payment types.
ACH PAYMENT: DIRECT DEPOSITS
Direct Deposit works for the types of deposit payments from businesses or government to a consumer. Things like:
- government benefits,
- employee expense reimbursements
- other reimbursements and annuities,
- interest payments.
ACH PAYMENT: DIRECT PAYMENTS
Direct Payment already aims at using funds for certain payments, both by citizens and organizations. It is the most widely used type of transaction in the United States of America.
DIRECT PAYMENT TYPES (ACH CREDITS AND ACH DEBITS)
There are 2 types of Direct Payments: ACH credits and ACH debits. They differ (mainly) in the way funds are transferred between things. Let’s understand.
With ACH credits the funds are placed in an account directly. That is, the payer (a customer, for example) adds funds to be credited to the bank account of the payee (a merchant, for example).
To further exemplify, think of an individual who has set up a payment at their bank or credit union to make a bill payment. This is exactly an ACH credit type payment (ACH credits).
In contrast, in ACH debits the funds are withdrawn from an account.
Using the example similar to the one above, it would be the case that the payer (a customer, in this case) gives the payee (the business owner, for example) permission to receive the due (payment) from his account whenever it is due.
To illustrate, think of an individual who needs to pay his mortgage or even a utility bill every month.
If he sets up ACH debit on his bank account this type of payment would be executed automatically, thus debiting his bank account. Remember that there are many different types of ACH debits.
TYPES OF DEBIT ACH
The ACH payment system supports several different models of ACH debits.
It turns out that each one has its own identification code, called the Standard Entry Class (SEC).
This code exists to represent the use cases of each specific type of ACH debits, because there are types that allow recurring payments, while others allow only some one-time payments.
For your knowledge, we will name a few:
Pagamento da ACH: Conversão de contas a receber – Conversão de contas a receber (ARC)
Name ACH debits: Receivables Conversion. SEC Code: ARC.
Description: ARC is an ACH debit used when the payment to be received is in the form of checks. This is the type of transaction that aims to convert a paper check into an electronic ACH payment.
ACH payment: Back Office Conversion – Back Office Conversion (BOC)
Nome ACH debits: Back Office Conversion . Código SEC: BOC.
Description: Back Office Conversion represents an ACH debit that is used when purchasing services or goods in person by check and will be processed in the back office later. It also allows a paper check to be converted into an electronic ACH payment (however, the difference being that it is processed in the back office later).
ACH payment: Concentration or Cash Disbursement – Cash Concentration or Disbursement (CCD)
Nome ACH debits: Concentration or Cash Disbursement Code SEC: CCD.
Description: This type of ACH debit is specific to receiving a payment from another company or related entities – usually for cash management purposes.
ACH payment: Corporate Commerce Exchange – Corporate Trade Exchange (CTX)
Nome ACH debits: Corporate Commerce Exchange. Código SEC: CTX.
The Corporate Commerce Exchange is an ACH debit most commonly used for third-party company payment receipt. It allows the merchant to place multiple addendums to the payment, so they can cover a number of invoices without losing important information.
ACH payment: Transition ACH Internacional – International ACH Transaction (IAT)
NameACH debits: Transition ACH Internacional. Código SEC: IAT.
The name says it all, the International ACH Transaction is the ACH debit model that fits all collection methods where the final payee is a company outside the United States of America.
ACH payment: Machine transfer input – Machine Transfer Entry (MTE)
Name ACH debits: Machine transfer input – Código SEC: MTE.
MTE, or Machine Transfer Entry, is the type of ACH debit applied to the use of debit that is initiated at an electronic terminal.
So now you are up to date on the ACH system, what it is, and how ACH Payments processing works in the United States.
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