HR Glossary
Automated Clearing House (ACH)

Automated Clearing House (ACH)

Updated on:
August 23, 2022


Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.

green check mark symbol
Fact Checked

Content is reviewed to provide accurate, clear, and reliable information. Learn about our editorial process

Table of Content

What is Automated Clearing House (ACH)?

An automated clearing house (ACH), also known as an ACH Network that manages electronic banking transactions., is a system for electronic funds transfer (EFT). ACH transfers consist of electronic debits and credits, which are given priority over paper checks. ACH transfers are generally used for transactions between banks and financial institutions.

ACH transfers are made via an electronic network based on the Automated Clearing House Rules and Regulations (ACH Rules). The ACH Rules govern the use of ACH, which is governed by the NACHA Operating Rules and Regulations.

How Does an ACH Work?

In an ACH network, funds are transferred from one bank account to another. If you are an employer and need to conduct payroll, you would initiate a transfer from your organization’s bank account to your employee’s bank account. 

Each ACH transaction involves an Originating Depository Financial Institution (ODFI) and a Receiving Depository Financial Institution (RDFI). Here’s how they work:

  1. The originator (employer/business) begins the direct deposit or payment using an ACH network. ACH portals generally allow you to set up one-time and recurring payments. 
  2. The payment amounts are entered electronically into the ACH network. 
  3. The ACH network makes a connection with the employer’s bank, or Originating Depository Financial Institution (ODFI). 
  4. The ODFI aggregates payments and transmits them in batches to an ACH operator. 
  5. ACH operator pushes funds to employees’ banks, or Receiving Depository Financial Institutions (RDFIs). RDFIs then post the payments into employees’ bank accounts. 

An automated clearing house (ACH) is an electronic network for financial transactions. ACH is used by businesses and individuals to make payments or collect payments. The ACH network is operated by the federal government and is regulated by the Federal Reserve.

ACH is used to process direct deposit of payroll and social security payments, as well as tax refunds. ACH is also used to process payments for utility bills, credit card bills, and mortgage payments. ACH is a safe and efficient way to process payments.

What Information Do You Need from Employees to Post an ACH to Their Accounts?


In order to successfully post ACH transactions, the CSR will need to obtain the following information:

1. Account Number

2. Account Type

3. Account Type Code

4. Account Name

5. Account Number

6. Account Number

7. Issuing Bank Name

8. Issuing Bank Address

9. Issuing Bank City

10. Issuing Bank State