What is Automated Clearing House?

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What is ACH or Automated Clearing House?

The term clearing house refers to the bank or any authorized financial institution that helps in transfer of funds from one bank to another for the purpose of facilitating the payment of demand drafts, Finance Jobs checks and other financial instruments. Similarly automated clearing house performs the same function with respect to credit card, debit card and other electronic instruments among financial transactions.

Automated clearing house links all commercial, public sector banks and other financial institutions in the United States of America. Their main function is to help in transfer of funds for transactions. Any mode of payment can be routed with the help of the automated clearing house. This system is foolproof in terms of security measures.Any merchant who applies for an ach merchant account can make use of this provided he knows about ach processing.

How it helps in Online Transactions?

Automated clearing house serves as a link between all banks. Whenever an account holder instructs his banker to transfer funds from his money to any other account like payment of monthly insurance premiums in the case of an individual and payment of bills in the case of a business entity an automated clearing house helps in such transfer of funds. However this function will be performed only when the customer has duly requested and authorized his banker in writing. Understanding ach involves clearly knowing the details of ach merchant account, ach processing, ach payment processing and ach wire transfer.

What is Direct Withdrawal Authorization?

Direct withdrawal authorization also has a similar applicability. A customer of a bank authorizes his banker to withdraw the money directly from his account for meeting a financial obligation or commitment. The only difference between this and the function performed by automated clearing house is that the banker can himself withdraw the money from your account and make the payment rather than transferring it to the account of the concerned account. Moreover the function is being performed by automatic clearing house in the earlier case whereas as far as direct withdrawal authorization is concerned the banker himself takes care of everything.

Advantages of Automated Clearing House

There are several advantages of automated clearing houses. Some of them include saving time and money. This process has helped the general public to plan their financial transactions well in advance. They have contributed greatly to the growth of banking industry and in generating more revenue to banks at a quicker phase.

Continue to: Advantages of Automated Clearing House

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