Ach System, How it Works,

¶ … ACH System, how it works, and its advantages and disadvantages. The paper shall also discuss about how the U.S. Payment System has been affected by the new ACH System. Further there shall be a discussion about the past, the present, and the future of the U.S. Payment System.

ACH Payment Processing System is the process by which payment for any product or service is made through the electronic payment system that is known as the ACH Processing System. Basically, the ACH Network allows the user to debit and credit accounts electronically, or, in other words, it means that money can be moved electronically. The communication system or network that uses the Federal Reserve Banking System to move money to and from various clearing houses needs a particular system that would accomplish these various transfers without much difficulty, and this is the Automated Clearing House, or the ACH. For example, a typical business may need or wish to collect a particular recurring payment without waiting for the customer to go through the tedious process of writing out a check and then sending it in by mail, and so on, each and every time he may need to move his money. (ACH Electronic Paying Processing)

If the same customer were to authorize an electronic debit to their account, then the transfer of the funds would be carried out electronically, and this is what is known as the Automated Clearing House or the ACH transfer. However, whatever may be the innate advantages, there are a few things to be remembered at the outset, and these are: the money would not be transferred immediately; rather the transaction would proceed as if the customer did indeed have a valid physical account with the necessary funds available in his account, and it may take up to two or three days, and four at the most, to obtain information that the transaction has been accomplished. Secondly, the money is not guaranteed to be paid; and this can be quite risky when dealing with strangers or in cases where payment is expected immediately. (ACH Electronic Paying Processing)

The best part of an ACH payment system is the fact that it evaluates an individual's specific needs, and then proceeds, it would be able to capture funds right on time at the mere touch of a button, and this would mean that there would be no more late payments, ever. In addition, a customer would no longer have to worry about writing a check and then seeing to all the other formalities that are generally associated with the issuance of a check as payment for a service or a product. The most important benefit, as far as the organization is concerned, is the fact that, when the customer has used the ACH payment system and has found that it is quite easy and good to use, he would then be a loyal customer to that particular shop or store, because of the simple fact that he would be able to avoid the mess of a monthly presentation and payment of a Bill; it would be taken care of with relative ease, with the adage 'out of sight, out of mind' predominating. (ACH Electronic Payments)

Researchers and experts have often expressed the belief that the U.S. payment System was due for a drastic change of operations. They have, in fact, been predicting that a change would happen in the near future, and that electronic payments and transactions would eventually replace the common check system. Despite all these predictions, customers in the United States of America have been extremely persistent in their check writing habits, and they have shown that were not willing to give it up without a struggle. A new study conducted by the Federal Reserve System clearly showed that, since the last study on the subject that was conducted more than twenty years ago, electronic payment systems are gradually but surely making advances into the U.S. payment system. The study also revealed that the use of checks for payments has decreased from 85% in 1979 to about 60% today. (New Dawn for U.S. Payments)

Today, ACH and other forms of electronic payments make up to about 40% of the entire retail market, and this comprises about 30 billion of the 80 billion payments that are made each year. The same study revealed that bill payments and point of sales were the biggest areas where checks were written and issued, and these comprised about 44.7% of the total check issue volume. If all these transactions were to be converted into electronic transfers and particularly into ACH transfers, then it would be extremely useful for those companies that need to or desire to automate the entire collection process, and these companies may belong to a wide range of industries, and if they were able to gain a leverage into NACHA's - the coordinator and the overseer of the ACH payment system network check to ACH conversion efforts, then there would be a great number of benefits for them.

Some of the foreseen benefits are as follows: the costs for processing payments would be greatly reduced, and the costs for handling all the various transactions in a traditional transfer of money would be almost eliminated, and these would have the most desirable result of an accelerated cash flow, as well as a vastly improved day sales outstanding ratio, or DSO, as it is known. The check to ACH services would also balance the needs of the customer in that there are several customers who would prefer to stick to the age old and traditional method of paying for a product or for a service by a hand written check. Therefore, some companies are taking the option of utilizing the opportunity of ACH payment systems to expand the range of payment system options that they offer to the customer who wants to make a payment to them. (New Dawn for U.S. Payments)

ACH is now an option that is offered by a large number of companies, wherein the customer can make his payment by the ACH system over a website or even through the telephone. In 2000, the American Banker reported that the facility of making payments by telephone and through websites did indeed boost up the ACH payments in 2001, the previous year. Therefore, when compared to the past, that is, the year 2000, after which the sales volume of ACH payments climbed up to a huge 8 billion, which was a 16.2% increase over the past year, there was a significant increase in the usage of ACH payment systems. At present, several newer payment systems through ACH have been introduced by NACHA, and one of these is the system wherein the customer would come to learn and to realize the various benefits of an ACH payment system, while at the same time making his payments by the traditional check system.

Point of Purchase, or POP as it is known check conversion, the accounts receivable check conversion, or ARC, in other words, and re-presented check, or REK, in other words, all are a part of the several different payment processes, and each one lays its primary focus on different points in the entire collection process. The ARC is when a check reaches the processing center of the company, and the biller can then at that time convert it into an ACH payment item. Those consumer items that are generally sent on to a lockbox or to a remittance-collecting center would fit into the ARC pattern. What the biller would have to do is to inform the customer that when the check is received, it means that the customer's authorization has been used for using that check as a document for the carrying out of an ACH debit transaction, then the biller would be able to capture the MICR Line, or what is known as the routing number, the check serial number and the account number, so that the amount of the check may be keyed in to an ACH account. (New Dawn for U.S. Payments)

It is predicted that the ARC system would be able to make a good dent in the check volume soon. The POP actually means payments that are made at the site of the business where checks are accepted on site, and there is no real limit to the amount of the transaction and the payment. When the customer presents his check, the biller would capture the MICR line and then enter the check amount. The retailer would then ask the customer to sign an authorization form wherein an electronic debit is accounted to his name, and when this is done, the check would be returned to the customer, since it is void now. Now the transaction can take place electronically. Represented check-RCK is the process by which a bounced check can be presented again, if there was a mistake that made it bounce in the first place.

The check can be scanned and then re-presented to the bank so that it can be included in the method of payment by ACH systems. The chance of collecting would be made significantly higher, and since the collection rates for electronic transactions are considerably higher, about 50% higher, to be precise than transactions on paper, it would only be more practical to take measures that would reduce this burden. The NACHA states that ARC transactions would require the biller to store a copy for a period of two years, and destroy the original document, and the reason for this is that it would be easier for them to carry out electronic transactions in the future. The ACH method offers immense benefits to billers too, and some of these are: check processing costs would be greatly reduced if there were no checks to present, the availability of funds would also be greatly improved, and these funds would be higher than ever before. Return items would be handled much faster and also with much more ease, and at the same time, consumers would be able to continue to write their checks. (New Dawn for U.S. Payments)

The payment systems in the U.S.A. is today evolving into an entirely universal and sophisticated system wherein innovations in payment systems have become the norm, and the more creative and innovative the idea, the better it would be for all involved. In fact, it is quite obvious that the latest methods of payment systems are the basis of the development of the new e-economy today. This is true in both retail and in wholesale areas, and new technologies, new players, new participants, and new payment systems are all transforming and changing the U.S. payment system beyond recognition. The result is often world wide, and one example is that the distinction between wholesale and retail has now become diminished and blurred, especially when large dollar payments are made through the ACH methods. In addition, there is an increasing blurring of the difference and the distinction between the domestic and the international flow of money, and now efforts are being made to create and to develop a cross-border type of ACH network of payment systems. (Payments and Settlement Systems, Future players and issues)

The latest development today as far as new methods of money transfers are concerned; 'nonbanks' have become the latest new trend. Most of the time, banks remain at the forefront of money transactions and movements, like for example, seen in the credit card usage over the Internet, but more often today than not, banks have been relegated to the background, as seen in the example of Paytrust and in Checkfree, both two different methods of electronic payment systems. In order to make an accurate assessment of the ways and means by which a change can be affected in the method of payments, one must remember to start off with an assessment of the various different goals of the public. Therefore, one must try to understand that whatever is the method of payment, the general public will expect any payment system to possess three basic characteristics, and these are: it must have a basic integrity, it must, in other words, be safe and secure, and also reliable at the same time.