Almost every American citizen and business relies on the ACH network to send and receive payments from different types of accounts. Still, many of you may not be wondering what is ACH debit. Well, ACH debit is a simple term that covers all the popular types of transactions concluded through banks for paying bills or other expenditures. This article will provide you with complete insights into what is ACH debit and how it works through the banking system.

What is ACH Debit?

ACH Debit is a transaction that is debited directly from your personal savings account, checking, or through a business checking account. In some cases, the business checking accounts may not approve ACH debit transactions based on defined requirements. ACH (Automated Clearing House) is the primary way of sending and receiving money from one account to the other.

ACH debit is usually considered as the amount of money pulled out from a business or personal account to transfer into the governments account. These transactions are performed through the ACH network to pay bills and make other purchases.

The ACH (Automated Clearing House) network constantly sends and receives requests from the banks and their customers to transfer funds. After receiving the payments, the ACH network rearranges the bundles of funds six times per day (business days) to transfer the money appropriately. When a debit request is forwarded to the ACH network for one of the accounts, it is called the ACH Debit request.

Its true that every transaction requires pulling some amount of money from an account, which means that ACH debiting is always happening in the banking system. However, the fact that this transaction is considered an ACH debit depends on which party initiated the request. In most cases, the biller is initiating the ACH debit request as the customer has to pay the dues.

On the other hand, if the customer is initiating a transaction on their end as an on-time transfer from their online banking service, then the customer is asking to push the money. Hence, such a money transfer is not considered an ACH debit.

How Does the ACH Debit Work?

The ACH debit transaction follows a simple process where one account holder agrees to pay the other. In order to conclude this transaction successfully, the party who has to receive the payment generates an authorization request for the party who has to pay. In this scenario, the money-receiving party submits a debit request to the ACH network to collect the payments and transfer them to their account.

Here is how the ACH network works for conducting the transactions:

• The ACH debit requesting party or their payment partner submits the payers account information, which is known as the ODFI (Originating Depository Financial Institution). Secondly, the debit request generator has to submit the amount that needs to be debited from the payers account, a category code, and the entry date for that request.
• After the request is generated, the Originating Depository Financial Institution or the payment processing partner submits the request to the ACH network.
• The ACH network then breaks down these incoming requests for transactions 6 times per business day. Then again, it rearranges these requests for instant delivery to every RDFI (Receiving Depository Financial Institution).
• Every Receiving Depository Financial Institution receives their transactions into the system and then executes them in a queue. In return, it forwards any return codes to any upcoming batch of ACH debit transactions.
• Finally, the Originating Depository Financial Institution transfers the funds through the ACH network, which were settled according to the request generated by the payee.

The ACH debit transactions can usually take up to one business day, depending on how long it takes the Originating Depository Financial Institution to transfer the funds. However, its worth noticing that the transaction could be reversed under certain circumstances if the RDFI informs ODFI within two business days. This is the reason why Originating Depository Financial Institutions usually prefer technology companies as their payment partners for the least chance of errors.

What are the Primary Types of ACH Debit?

The ACH network system supports various types of debit transactions, which are classified and defined by their own SEC code (Standard Entry Class code). Here are some common types of Standard Entry Class codes for ACH debit.

• Accounts Receivable Entry (ARC): This type of entry converts the physical checks into ACH debit transactions. This includes checks received via mail or any physical means.
• Back Office Conversion (BOC): This type of conversion involves converting physical checks received by the payer into ACH debit transactions. Such processing is usually conducted by the office when the check is submitted in person.
• Corporate Credit or Debit Entry (CCD): These types of entries refer to the transactions performed between two business accounts.
• Internet-initiated Entry (WEB): These types of transactions are debited from consumer bank accounts, where the transaction requests are generated online for peer-to-peer payments. It also includes requests generated from banking applications or requests submitted by banks online.
• Point-of-Purchase Entry (POP): This type of entry instantly converts the check received in person into an ACH debit transaction. In such scenarios, the checks have to be voided and returned right away.
• Point-of-Sale Entry (POS): These types of entries denote the bank account debits for submitting card payments performed via electronic means.
• Prearranged Payment & Deposit Entry (PPD): This type of entry performs direct debiting or crediting to the customer or payers account based on the request submitted by the account holder (receiver).
• Telephone-initiated Entry (TEL): Debiting amount from the customers account for a telephonic transaction performed on the basis of information exchanged over vocal conversation.

Conclusion

ACH debit transaction provides you with a convenient yet safe way to send and receive payments from one account to the other. ACH network may give you an advantage over their payment system. However, in some scenarios, a person or a business may prefer other means of transferring funds. We hope this article provided you with thorough details on what is ACH debit and how does it work.