Frequently Ask Questions

There are ve key participants that contribute to the successful completion of an ACH transaction. As each participant is discussed, the financial institution should better understand the role it plays in the system.

The Originator is the company/business that has been authorized by the Receiver to either credit or debit an account. When a company initiates a credit transaction to their employee’s account for payroll or to a business customer’s account for payment of goods and services, it is considered the Originator. Originators may also initiate debit transactions to a consumer or business account for payment of goods or services.

TheReceiver can be either an individual or a company that has authorized the Originator (company) to credit or debit their account. The employee is the Receiver if his/her employer is initiating a Direct Deposit payroll credit. A business partner is the Receiver if the Originator is sending a credit to pay for goods or services. The Originator can also be a Receiver, in situations where another party is initiating credits or debits to their account.

The authorization is a key component of an ACH transaction, as it gives the Originator the authority to send credit or debit transactions to the Receiver’s account. The manner in which the authorization may be obtained varies based on the type of transaction.

The Originating Depository Financial Institution (ODFI) is the financial institution with which the Originator (company) has a contractual relationship for ACH services and is responsible for sending ACH entries into the ACH Network on behalf of the Originator. Through the warranties outlined in the ACH Rules, the ODFI has the greatest liability of all the participants in the ACH Network. The contractual relationship between the Originator and the ODFI outlines the rights and responsibilities of the two parties with respect to the ACH transactions being originated and provides the ODFI with a mechanism to pass some appropriate liabilities to the Originator (company).

An example of this relates to authorizations. The ODFI warrants to all the other Network participants that transactions are properly authorized; and yet, the Originator obtains and maintains this authorization. Hence, the agreement between the Originator and ODFI will undoubtedly address the Originator’s responsibilities regarding authorizations.

The ACH Operator is the central clearing facility for ACH transactions. The ACH Operator is responsible for accepting files of ACH entries from ODFIs, which are then sorted, batched and forwarded to the Receiver’s financial institution. The ACH Operator also performs some editing functions, ensuring that mandatory information required in ACH records is included. There are currently two ACH Operators, the Federal Reserve Bank and EPN (Electronic Payments Network).

The Receiving Depository Financial Institution (RDFI) is a financial institution with which the Receiver has an account relationship. Credit or debit entries sent to a Receiver’s account will be received by the RDFI from the ACH Operator and then posted to the Receiver’s account.

The RDFI’s primary responsibilities are to:

1. Post ACH entries to the Receiver’s account.
2. Make funds available to the Receiver for credit entries or debit the Receiver’s account on the Settlement Date.
3. Provide information regarding each ACH transaction to the Receiver on their statement.
4. Return ACH entries, within the speci ed timeframes, when the transactions cannot be posted.

There are two other Network participants that may be involved in the ow of transactions, Third-Party Service Providers and Third-Party Senders.

A Third-Party Service Provider is a party which performs an ACH processing function on behalf of the Originator, ODFI or RDFI. A payroll processor is a common example of a ird-Party Service Provider used by Originators. A subset of Third-Party Service Providers sending or receiving ACH les on behalf of a nancial institution are known as Third-Party Sending Points and Third-Party Receiving Points, respectively. ese entities can be correspondent banks, corporate credit unions or processors.

A Third-Party Sender (TPS) is an entity that has a contractual relationship with an ODFI to transmit debits or credits to the account of a Receiver on behalf of the Originator. A Third-Party Service Provider is more speci cally a Third-Party Sender when there is a contractual relationship between the Originator and the Third-Party, and there is NOT an agreement between the Originator and the ODFI.

Again, referencing the payroll processor example, if the Originator has an agreement with an ODFI for ACH origination and they use a payroll processor to create the ACH file on their behalf, the payroll processor is a Third-Party Service Provider. If the Originator has a contractual relationship with the payroll processor and the payroll processor sends the ACH file to the payroll processor’s financial institution for introduction into the ACH Network, the payroll processor is considered a Third-Party Sender.

The Originator obtains authorization to initiate a transaction to the Receiver’s account or provides notice to the Receiver that a transaction will be initiated to the Receiver’s account.

The Originator initiates a le of ACH transactions and presents the file to its ODFI.

The ODFI collects ACH files from Originators with which it has contractual relationships, verifies the validity of these files and at specified times, transmits these files to the ACH Operator. The ODFI may consolidate these individual files as batches into a larger file that is then transmitted to the ACH Operator. The ODFI may retain entries within these files that are intended for account holders at its institution. These entries are known as on-us entries.

The ACH Operator receives ACH files from the ODFI, edits the files to make sure they are formatted properly and distributes files of entries to the RDFI.

The RDFI receives files of entries from the ACH Operator for its account holders. Entries are posted based upon the Settlement Date and account number. Periodic statements are provided to the Receiver with descriptive information about the ACH transaction, including the date of the transaction, dollar amount, Originator name and transaction description (e.g., payroll, water bill, Internet purchase).

Settlement is the actual transfer of funds between financial institutions to complete the payment instructions of an ACH entry. ACH settlement can only occur on banking days. The Federal Reserve Bank provides settlement services for ACH entries, for both the Federal Reserve ACH Operator and any private sector ACH Operator (currently only EPN). The Federal Reserve Bank calculates the net debit and credit positions of financial institutions and applies those debits or credits to the account of the financial institution or to the account of its correspondent financial institution.

The timing of settlement is based upon the Effective Entry Date indicated by the Originator on the ACH file and the time of its delivery to the ACH Operator. The Effective Entry Date is the date the Originator intends for the entries to post to the accounts of the Receivers (employees or customers).

When the ACH Operator processes an ACH file, the Effective Entry Date is read and a Settlement Date is assigned. Entries are settled by the ACH Operator on the Settlement Date.

In most cases, the Settlement Date is the same as the Effective Entry Date, but it is possible that the Settlement Date could be after the Effective Entry Date. For example, if the ACH Operator cannot settle on the Effective Entry Date due to untimely file delivery, a stale date, weekend or holiday, the ACH Operator will apply a Settlement Date of the next business day.

ACH debits may be delivered to the ACH Operator no earlier than one banking day prior to the Settlement Date. ACH credits may be delivered no earlier than two banking days prior to the Settlement Date.

In general, there are two types of ACH transactions sent through the ACH Network:

• Commercial—Entries originated by the private sector, including state and local government entities.
• Government—Entries originated by federal government agencies (i.e., Social Security Administration, Veteran’s Affairs, Civil Service, etc.).

Commercial ACH entries can further be classified as follows:

• Direct Deposit via ACH-—Credit entries deposited into a consumer’s account. Direct Deposit includes payments such as payroll, travel reimbursements, government benefits, tax and other refunds, and annuities and interest payments. The deposits arrive and are made available more quickly than paper checks, and can be automatically divided among different accounts based on the Receiver’s direction.
• Direct Payment via ACH—-Credit or debit entries sent or received by individuals or organizations for making a payment. Basically, any ACH payment that is not a Direct Deposit is known as Direct Payment. Direct Payment includes recurring and single-entry payments such as prearranged ACH payments, Internet-initiated ACH transactions and check conversion into the ACH Network. Direct Payment saves time by eliminating check writing, and since payments are automated, the potential for missing or forgetting payments is reduced.

Increasingly, companies are realizing the benefits of Direct Payment for business-to-business payments. These payments reduce check preparation and distribution expenses, eliminate postage costs, improve cash flow and cash forecasting, can improve payment discounts and simplify account reconciliation. Additionally, payments can accommodate payment-related information in addenda records in standard electronic data interchange (EDI) formats or in NACHA-endorsed banking conventions.

The ACH Network can also be used by consumers and businesses to exchange funds and payment-related information internationally. In the international payment environment, a new participant, the Gateway, acts as the contact point for a financial institution. The Gateway assumes responsibility for foreign exchange conversion and settlement, format mapping and translation of data.

Subject to its right under the ACH Rules to return entries and to reject prenotifications, RDFIs must accept ACH transactions (including reversals) received to any transaction account maintained with that institution. With the exception of Destroyed Check Entries (XCK) and non-transaction accounts, the financial institution may not return an entry solely because it is a credit entry or a debit entry or is a particular type of credit or debit entry.

No. If you have current processing accounts at other places it will not affect your chances of approval unless your chargeback rate is exponentially high.

This answer can vary based on the speed in which we receive all the required documents. If much of the time is spent waiting for due diligence material from your end, it will delay the approval times. We can often get deals approved in 48 hours, however, this timeframe can extend depending on stipulations related to your account.

Don’t let this term scare you. It simply means that your product or service doesn’t conform to the credit policy of your previous processor’s sponsoring bank. Most processors work with conventional (or tier one) banks. These banks focus on retail card-present transactions, and anything that falls outside of that is considered high risk. Each and every bank differs slightly on the types of industries allowed within their credit policy.

When we apply we need to request a monthly volume in total gross credit card sales expected/needed per month. Remember, this number can be increased on an as needed basis. The bank will not offer an unlimited credit facility to merchants, they try to gauge what you need and then grow with you. They need to use that credit facility for other merchants.

While you are applying for a merchant account the banks want to see a chargeback ratio under 3%. If you are already processing with the bank and have a long-standing history they will be more forgiving. If you exceed the chargeback threshold in any given month you run the risk of termination.