ACH

ACH transfers are US-based money transfers used to transfer funds between US-based banks or other financial institutions. These transfers are more cost-effective than payments made by check or credit or debit cards.

International ACH transactions (IATs) are transactions involving a US-based bank or financial institution and one outside the United States. These transactions are managed by the National Automated Clearing House Network (NACHA).

The process for direct debit typically involves the following steps:

1. A customer enters into a business agreement that involves regular payments, e.g. signing up to a subscription service.

2. The consumer signs an authorization form (mandate) agreeing to have their account debited at regular intervals to meet their payment obligations.

3. Once the invoice is due, the vendor submits an ACH debit request to pull the funds from the consumer’s account. This request is submitted through an Originating Depository Financial Institution (ODFI) or partner, typically the vendor’s bank or payment processor.

4. The ACH network processes batches of these payment requests and settles between banks accordingly. Batches are then forwarded to the bank that will receive the amount (the Receiving Depository Financial Institution or RDFI).

5. RDFIs process the instructions in the incoming batches. If a transaction cannot be processed (e.g. the account number is incorrect or not enough funds are available to cover the payment), corresponding return codes are sent.

6. Once the transaction is settled, the vendor receives payment.

The entire process typically takes 1-2 days until the funds are deposited.

ACH is a network used by US-based banks. Similar networks exist in other regions, e.g. SEPA in Europe.