The Automated Clearing House (ACH) is an electronic network that allows banks and other financial institutions to quickly and easily clear electronic payments. The network is governed by operating rules and guidelines developed by the National Automated Clearing House Association (NACHA). The batch-based processing provided by the ACH allows for cheaper, faster and more secure transactions than processing individual paper checks, according to ComputerWorld.com.
Approximately 9 million Americans are victims of identity theft each year, according to the Federal Trade Commission. The National Automated Clearing House Association estimates that 85 percent of identity theft results from the thief obtaining personal information from the victim's paper check, bank statement or credit card bill. ACH transactions occur electronically and automatically, which dramatically reduces the number of individuals who have access to personal or financial information. Since ACH transactions are electronic they cannot be misplaced, lost in the mail or stolen. According to the NACHA, any problems that may occur with an ACH transaction can be quickly resolved.
Access to Funds
Paper checks deposited into a bank account may not be available to the account holder immediately, according to BankRate.com. In compliance with The Expedited Funds Availability Act of 1987 financial institutions may hold funds for up to five business days for checks drawn on out of state banks before making them available to the depositor. Local checks may be held for up to two business days. Funds transferred through the ACH are immediately available to the account holder.
Recurring payments only need to be authorized once, prior to the first transaction. No further authorization is required to continue making payments to an account through the ACH, according to the National Automated Clearing House Association. Transactions such as direct deposit payroll checks are credited directly to the individual's account, eliminating the need to pick up the check and make a trip to the bank. This also eliminates the need for businesses to make special pay arrangements for employees who may be on vacation, on leave or working away from their primary place of business for an extended period of time.
The number of transactions processed electronically exceeded the number of transactions processed by paper check in 2002, according to the Office of the Comptroller of the Currency. The increased popularity of electronic funds transfer processing through the ACH has contributed to significant economies of scale for the system, which in turn provides significant cost savings to financial institutions and business who use it. According to the Office of the Comptroller of the Currency a paper check transaction costs five times as much to process as the same transaction processed through the ACH.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.