Reference
ACH glossary: payment terms in plain English
Plain-language definitions for the ACH and payments terms you'll run into, from ODFI and Nacha to pay by bank and return codes. Bookmark this for the next time someone asks what an ODFI is.
A
Account validation
Checking that a bank account is real and open before the first debit. Nacha requires it the first time a business uses an account number for a WEB (online) debit. See bank account verification.
ACH
Automated Clearing House. The U.S. electronic network for moving money between bank accounts. Operated by the Federal Reserve and The Clearing House.
ACH credit
A push transaction. The originator tells their bank to send funds to a recipient (for example, a payroll deposit).
ACH debit
A pull transaction. The originator tells their bank to pull funds from a payer's account (for example, utility bill auto-pay).
ACH merchant account
An account with an ACH processor that lets a business pull payments from customer bank accounts. Opened by applying and passing underwriting. See apply online.
ACH processor
A company that sends ACH payments for businesses, handling setup, underwriting, and returns. See how ACHQ works.
B
Bank verification
Confirming that a bank account exists, is open, and belongs to the person claiming it. Reduces returns and fraud. See bank account verification.
Banking day
A weekday when banks are open, not counting weekends and federal holidays. ACH return deadlines are counted in banking days.
Batch
A group of ACH payments submitted together in one file.
C
CCD
Cash Concentration or Disbursement. ACH SEC code for business-to-business transactions.
Chargeback
A reversal of a card transaction started by the cardholder's bank. Different from an ACH return. See ACH return codes.
Check 21
The Check Clearing for the 21st Century Act. Allows banks to process checks electronically using digital images.
CTX
Corporate Trade Exchange. ACH SEC code for business-to-business payments that carry detailed remittance information, like invoice numbers.
D
Direct debit
Another name for an ACH debit.
E
eCheck
An electronic version of a paper check. Can be processed over ACH (using SEC codes like ARC, BOC, POP, RCK, WEB, or TEL) or as a Check 21 image exchange. See eCheck processing.
Effective entry date
The date the originator wants the payment to settle between banks.
M
Micro-deposits
Two small deposits sent to a bank account. The account holder confirms the amounts to prove they own the account.
N
Nacha
The organization that governs the ACH network (formerly written NACHA). Sets the rules, formats, and operating procedures.
NOC (Notification of Change)
A message from the customer's bank that account details on file are wrong or out of date, with the corrected information. The business must make the correction within six banking days, or before its next payment to that account, whichever is later.
O
ODFI
Originating Depository Financial Institution. The bank that submits ACH entries on behalf of an originator (the business).
OFAC
Office of Foreign Assets Control. Enforces U.S. sanctions. Originators must screen transactions against OFAC lists.
Originator
The party that starts an ACH transaction. Usually a business collecting payments or sending payouts.
P
Pay by bank
Paying straight from a bank account instead of with a card. In the U.S. it usually runs over the ACH network. ACHQ processes pay by bank payments for businesses. See accept ACH payments online.
PPD
Prearranged Payment and Deposit. ACH SEC code for consumer transactions with written authorization.
Prenote
A zero-dollar test entry sent before the first real payment to check that the routing and account numbers are valid.
R
RCC
Remotely Created Check. A check created by the payee using the payer's account information without a physical signature.
RDFI
Receiving Depository Financial Institution. The bank where the receiver of an ACH transaction holds their account.
Receiver
The party whose account is debited or credited in an ACH transaction. Usually the consumer or end customer.
Recurring ACH payment
A payment pulled on a schedule, like monthly rent or dues, under one authorization from the customer. See recurring ACH billing.
Reinitiation
Sending a returned payment again. Nacha allows it only in limited cases, like up to two more tries after an R01 or R09 return, within 180 days. See retry rules.
Return
An ACH transaction that bounces back from the RDFI. Comes with a return code (R01, R02, and so on) explaining why. See the full list of ACH return codes.
Return rate
The share of a business's ACH debits that come back. Nacha's limit for unauthorized returns is 0.5%. Going over 3% administrative or 15% overall starts a Nacha inquiry. See ACH return rate thresholds.
Routing number
The nine-digit number that identifies a bank in the U.S. Also called an ABA routing number.
RTP
Real-Time Payments. The Clearing House's instant payment rail. Different from ACH and Same Day ACH.
S
Same Day ACH
ACH transactions processed and settled between banks within the same business day, with three settlement windows.
SEC code
Standard Entry Class code. Three-letter code (PPD, CCD, WEB, TEL, ARC, and others) classifying the type and authorization of an ACH entry.
Settlement
The actual movement of funds between banks to complete an ACH transaction.
T
TEL
Telephone-Initiated Entry. ACH SEC code for transactions authorized over the phone.
Third-Party Sender
A company that sends ACH payments for other businesses through its own bank relationship. Many ACH processors are Third-Party Senders.
Tokenization
Replacing a bank account number with a token, so the account number doesn't have to be stored in your own systems. See the ACH API.
Trace number
A 15-digit identifier assigned to every ACH entry. Used to track transactions through the network.
U
Underwriting
The review a processor does before approving a business: verifying the business and its owners, checking the bank account, and setting limits.
W
WEB
Internet-Initiated Entry. ACH SEC code for transactions authorized on a website or mobile app.
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