1. ACH Basics for Businesses
Utility Payment Conference 2017
© 2017 NACHA — The Electronic Payments Association. All rights reserved.
No part of this material may be used without the prior written permission of NACHA. This material is not intended to provide any warranties or legal advice and is intended for educational purposes only.

2. What is ACH?
ACH (Automated Clearing House Network) refers to a specific electronic payment network.
The ACH Network is used for business, government and consumer domestic and international payments
Funds are moved between bank accounts by the banks
Payments settle within 1-2 days for “Classic ACH”; payments settle in the same day for “Same Day ACH”
The Network is governed by NACHA–The Electronic Payments Association

3. As Network Administrator, NACHA is responsible for the “Logical” ACH Network
ACH Logical Network
ACH rules set, and associated payment types and formats owned by NACHA
Allows counterparties to logically and confidently pass transactions to each other, knowing how they will be recognized and dealt with
NACHA holds the role of the Network…
Administrator
Rules Creator
Rules Enforcer
Educator
Supporter
Protector
ACH Physical Network
The physical environment required to move transactions
The technology and communications environment, and associated product set, needed to initiate, clear and settle ACH transactions between counterparties
ACH Operators take the role of…
Processing and routing transactions
Maintaining access to all sending and receiving endpoints
Inter-operator exchanges
Services to help financial institutions manage ACH volume and risk management
Interbank settlement
Network reporting to NACHA

4. What are the NACHA Operating Rules?
Provides a common set of rules and formats
Establishes the legal foundation for the ACH Network
Creates certainty and interoperability
Defines roles and responsibilities

5. Who are the Participants?
Receiver
Originator
ACH Operator
RDFI
ODFI

6. What is a Credit Payment?
In a CREDIT ACH payment, the customer or buyer “pushes” funds from the customer/buyer’s bank account to a biller/merchant’s bank account.
(Example – Direct Deposit; paying bills from online banking)

7. What is a Debit Payment?
In a DEBIT ACH payment, the merchant/biller “pulls” funds from the customer or buyer’s bank account for transfer to the seller’s bank account

8. What is an Authorization?
“An Originator must obtain authorization from the Receiver to originate one or more Entries to the Receiver’s account.”
2017 NACHA Operating Rules, Article Two, Subsection 2.3.1

9. Authorizations Consumer Authorizations Readily identifiable
Have clear and readily understandable terms
Provide that Receiver may revoke only by notifying Originator in manner specified

10. Authorizations Consumer Authorizations
Debit entries to consumer accounts
Notice of change in amount
Notice of change in scheduled date
Copy of debit authorization

11. Authorizations Consumer Authorizations
Single Entries vs. Recurring Entries
Single-Entry — one-time transfer of funds initiated by an Originator based on the Receiver’s authorization for a single ACH entry to the Receiver’s account
Recurring Entry — entry that has been set up to occur, based on the Receiver’s authorization, at regular intervals without any additional intervention by the Receiver

12. Authorizations Non-Consumer Authorizations
Originator and Receiver must have an agreement that binds the Receiver to the Rules
No specific format for the agreement
Agreement should contain authorization for ACH transactions, as well as any specific terms and conditions

13. Authorizations Authorization Retention
Retain original or copy of authorization for 2 years from date of termination
Upon RDFI request, provide copy of authorization so that ODFI can provide to RDFI within 10 banking days
Non-Consumer transactions: provide record of Receiver’s authorization or contact information

14. Types of Authorizations
Written
Notice
Oral
Similarly Authenticated

15. Standard Entry Class (SEC) Codes
Three-letter acronym to identify the ACH transaction type
Distinguishes:
Corporate from consumer payments
International ACH payments
Key aspects surrounding the initiation of the ACH payment (telephone, Internet or mobile, conversion of a paper check, at the point-of-sale, etc.)
Indicator that certain provisions of the Rules, risk management practices, and/or legal requirements apply to the transaction

16. Standard Entry Class Codes
PPD
Prearranged Payment or Deposit

17. Standard Entry Class Codes
TEL
Telephone Initiated Entry

18. Standard Entry Class Codes
WEB
Internet Initiated Entries
(P2P only)

19. Standard Entry Class Codes
CIE
Customer Initiated Entry

20. Standard Entry Class Codes
CCD
Corporate Credit or Debit

21. Standard Entry Class Codes
CTX
Corporate Trade Exchange

22. Check Conversion & Truncation
Standard Entry Class Codes
Check Conversion & Truncation
Truncation
RCK
Conversion
ARC
BOC
POP

23. Exceptions
Returns
Normal returns – return entry must be received by RDFI’s ACH Operator by its deposit deadline for the return to be made available to the ODFI no later than opening of business on second banking day following settlement date of original entry
Account closed
NSF
Bad Account number
Unauthorized entry to Non-Consumer Account
Consumer extended return – “…no later than opening of business on the banking day following the 60th calendar day following settlement date…”
Unauthorized entry to Consumer Account

24. Exceptions Re-initiation
Originator or ODFI may reinitiate returned entry if:
Returned for NSF/uncollected funds
Returned for stop payment and reinitiation was authorized by Receiver
Corrective action taken to remedy reason for return
Re-initiation must occur within 180 days from settlement date of original entry
Reinitiated entry must be for the identical amount as the original entry and must contain special formatting

25. Exceptions Reversals (files and entries) Erroneous entry
Wrong Receiver
Wrong amount
Duplicate
Also specific conditions related to payroll payments
Must be sent within 5 days of erroneous file/entry

26. Best Practices Authorizations Pre-notes Trial deposits
Confirm that customer paying is authorized on account to be debited
Use clear authorization language, including means to revoke authorization
Pre-notes
Non-monetary entry sent prior to first live entry to notify customer’s financial institution that you intend to send ACH to their account holder’s account
You must wait 3 banking days after prenote before sending live dollar entry
Customer’s financial institution must verify account number and may:
Return
Send NOC
If account number is valid – do nothing
Trial deposits
Partnership with account verification service

27. Best Practices Work with your financial institution
Understand ODFI requirements and procedures for collecting debit authorizations
Understand obligations for debit transactions returned as unauthorized
Ask about dispute resolution services

28. Questions?
Danita Tyrrell, AAP Director, Network Rules NACHA