How To Use Automated Clearing House Processing

Automated Clearing House (ACH) processing is an accurate and efficient way to send and receive funds electronically using the Federal Reserve's clearing house to route funds.  Most companies have adopted use of Automated Clearing House transfers for processing payroll (known as direct deposit) and for paying bills and refunds due to its efficiency and low cost compared to paper checks.  Paper checks can cost companies anywhere from fifty cents to a dollar per check, whereas the change to ACH transfer can save a large company thousands of dollars per year.  The transfer to Automated Clearing House transactions from paper check has its benefits to the payee as well, as funds are generally available on the second business day after the transfer.

To begin processing transactions through ACH, the payer will contact their financial institution to enroll. Many banks offer the option of processing transactions using the Automated Clearing House for free or for a very low fee per transaction. The transaction instructions are sent to the bank along with payment information, and the funds are withdrawn from the account for processing through the Automated Clearing House overnight. The next day the funds are forwarded through the ACH to the payee's account.

Processing Automated Clearing House transactions can be initiated by an individual using online bill payment or a third party application like PayPal. Companies often send their ACH payments once a day using their accounting software to send one large file with payment information to their bank overnight. Depending on the frequency of use, the transfer may happen seamlessly from payor to payee with a small amount of reconciliation to be done. Companies that adopt ACH transfer have the added stability of being able to reconcile banking accounts immediately, rather than forecasting dates that checks will be cashed for funds or having to track checks that have been lost or stolen. Funds that are sent through Automated Clearing House processing with incorrect data will be returned to the payee with a brief description about the problem, for example, account closed or incorrect account number.

Use of Automated Clearing House transactions can be a quick and efficient way of paying bills without the added expense and reconciliation trouble posed by other payment methods. It's best to contact your bank to inquire about enrollment in ACH payment processing and get advisement on if it's right for you.


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