On the surface, it seems like ACH transactions just happen. Behind the scenes, several organizations work together to make sure funds move safely and securely from one bank to another. Here’s what you need to know about the players involved in ACH payments.
The originator is the person or organization who initiates an ACH transaction. The originator could be:
- An individual who uses their bank account for a payment
- A business using ACH to pay employees or make vendor payments
- A financial institution, like a bank or credit union
Part of the originator’s responsibility is to provide the necessary payment details and get authorization.
The receiver is the entity authorized to receive ACH payments. They play an active role in authorizing and receiving payments in their bank account.
ODFI—Originating Depository Financial Institution
The ODFI is the financial institution that initiates and processes ACH transactions on behalf of the originator. They have the responsibility of accurately transmitting the ACH transactions and ensuring compliance with ACH rules and regulations.
Payment requests, or entries, will include some key information:
- The name of the bank receiving the request and it’s routing number
- The type of account, i.e. checking or savings
- The receiver’s name
- The receiver’s account number
RDFI—Receiving Depository Financial Institution
The RDFI receives and processes ACH transactions on behalf of the receiver. They play a critical role in accurately crediting the receiver’s account with the funds received and must respond to requests within 48 hours.
The ODFI and RDFI communicate to make sure funds are available to complete the transaction. If the funds are available, the transfer is approved. Otherwise, the request is returned.
The ACH operator is a clearing facility that facilitates the flow of ACH transactions. They receive entries from an ODFI and distribute them to the correct RDFI. There are two ACH operators: the Federal Reserve and The Clearing House.
Nacha, formerly the National Automated Clearing House Association, governs the ACH network and establishes rules and standards for ACH transactions in the United States. Both the ODFI and RDFI must be certified by Nacha to send and receive requests.
Compliance with Nacha’s guidelines is crucial for ensuring secure and reliable ACH transactions. They promote innovation and efficiency within the ACH network.
Third-Party Service Providers
Third-party service providers offer a range of services related to ACH transactions, including processing, risk management, and compliance. Collaborating with these providers streamlines payment processing and enhances security.
As you can see, there are several organizations involved in processing ACH transactions. Each plays a key role in transferring funds between banks.
If you’re interested in ACH payments for your business, contact us to discover how you can get paid easier and sooner.