How does an ACH payment process?
ACH payments are much different than credit card sales, and go through several back-end steps to process.
We'll go through the five basic "steps" of an ACH debit - this occurs for every ACH transaction you initiate with your customers!
Bob needs to pay his bill, and has given his authorization to your company. He gives you his bank account information for you to enter into your AND gateway, or you send Bob a request via email for him to input his ACH information. He does, and the sale is set!
Once you complete the sale, it's sent in for processing that evening. Your business is now known as the "ACH originator" in this transaction.
That evening, in the background, the AND gateway sends a file with all of the payment details to the bank, called the "Originating Depository Financial Institution", or ODFI. The bank makes a record of Bob's transaction, and batches it together along with all other daily transactions, to send to the "ACH Operator".
The ACH Operator is the Federal Reserve or the Clearinghouse. Once they receive the file with Bob's payment in it, they send a request to Bob's bank to remove the money, and send it to your bank - Bob's bank is known as the "RDFI" or "Receiving Depository Financial Institution".
The RDFI (Bob's Bank) checks the file, to ensure that Bob has enough money in his account. Assuming he does, the transaction is processed, and Bob is debited for the value of the transaction.
As you can see - there are several steps happening here, involving multiple institutions. Unlike a credit card (where only the issuing bank is making a determination on the sale's legitimacy) - this transaction requires the involvement of the clearinghouse/Fed to complete the sale, and ensure the bank account has enough funds to cover the transaction. Thus, there are longer time-frames for payment. ACH payments can take between 3-5 days to fund, depending on your account type.
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