Everything ACH

I still remember when I first got involved in ACH; it was 1997.  The Green Bay Packers won Super Bowl XXXI, Candle in the Wind by Elton John was on the radio and Men In Black was a box office hit.  My very first day at my new job, my boss handed me a book titled “The ACH Answer Guide” (no longer in publication) and then stated “I’ll be back in 15 minutes to wake you up”.  He chuckled as he walked away.

Needless to say, 15 minutes later, he was tapping me on the shoulder and I wiped some drool from the corners of my mouth.  Yup, I had fallen asleep, just as predicted.

Now I know that ACH is not very exciting stuff.  It’s not exactly a John Grisham novel if you know what I mean.  It is however a very big part of our lives.  There are many people such as myself who have made a living understanding it, talking about it and teaching it; and yet, there are still so many people who don’t really understand it. 

I’m hoping to change that. 

So, what is ACH?  Technically, it’s an acronym for Automated Clearing House.  However, the official definition according to NACHA, is “The ACH Network is a batch processing, store and forward system that provides for the distribution and settlement of electronic credits and debits among participating financial institutions.”

Now you might be thinking, I know all those words are English, but what does it mean?  Let’s break it down.  The 2 parts that I think need the most explaining are:

“…batch processing, store and forward system…” – Unlike Credit and Debit cards which are real time, meaning that you can swipe your card to make a purchase and seconds later, log into your account and see the transaction, ACH is more of an overnight kinda thing.  Companies collect and store transactions over the course of a day/week/month, etc. in a batch.  They then forward those transactions (in batch form) to their financial institution or a company such as ACH Direct for processing.

“…among participating financial institutions.” – There are some 14,000 financial institutions (Banks, Credit Unions and Savings & Loan Associations) in the U.S.  As odd as it may seem, not all financial institutions (FIs) participate in the ACH Network.  There are a number of FIs such as smaller banks or S&Ls and shoe-box Credit Unions that simply do not participate for any number of reasons.  And that’s OK.

With that in mind, I think the rest makes sense.  Now that you know what it is, next time, we’ll talk about the players and find out Who’s on first?