Glossary

A
ACH Association – An organization formed by financial institutions to regulate and support the exchange of electronic transactions among member institutions.

ACH Credit – A transaction through the ACH network originated to pay a receiver (deposit funds into an account).

ACH Debit – A transaction through the ACH network originated to remove funds from the receiver (withdrawal from account).

ACH Network – The funds transfer system governed by the rules of the National ACH Association which provides for the inter-financial institution clearing of electronic entries for participating financial institutions.

Addenda Record – An ACH record type that carries the supplemental data needed to completely identify an account holder(s) or provide information concerning a payment to the RDFI and the Receiver.

Affidavit – A sworn statement by a consumer declaring that a particular ACH transaction was authorized or that the authorization for that transaction has been revoked.

Agreement – A contract between an originating company and an ODFI that defines the operational and legal relationship between the two entities when transferring funds electronically through the ACH.

ASCII – American Standard Code Information Interchange. ASCII is a standard seven-bit code created to achieve compatibility among various types of data processing equipment. The standard ASCII character set consists of 128 decimal numbers ranging from 0 through 127, assigned to letters, numbers, punctuation marks, and the most common special characters.

Authentication – To establish the authenticity of; prove that the authorizer is genuine

Authorization – An agreement by a receiver to allow for the posting of debit or credit items to their account. Authorizations for credit transaction my be orally given, but debit transactions must be authorized in writing or similarly authenticated if by other means (for example, by digital signature or PIN if by computer.)

Automated Clearing House – a central clearing facility, operated by a Federal Reserve Bank or a private sector organization on behalf of depository financial institutions in which participating DFIs transmit or receive ACH entries.

Automated Deposit – a deposit made directly to an account at a depository institution through the ACH network (i.e., payroll deposits, social security payments, and retirement benefits).

Available Funds – Funds currently available for immediate use.

Availability – The number of days required to collect items before the customer has use of the funds.

B
Banking Day – Any calendar day except Saturday, Sunday and legally defined holidays (as defined in Regulations D and CC)

Batch – A group of records or documents considered as a single unit for the purpose of data processing.

Business Day – Any day on which a participating Depository Financial Institution (or ACH Operator) is open for carrying on substantially all of its business functions (as defined in Regulation E).

C  
Cash Concentration – The transfer of funds from diverse accounts into a central account to effect more efficient cash management

Cash Disbursement – The transfer of funds from a central account to diverse accounts to effect more efficient cash management

Central Information File (CIF) – A master file maintained by the ACH containing information on each depository financial institution. This file includes the depository financial institution's name; transit routing number, address, settlement and delivery information and output medium requested.

Check Conversion – Using payment information from a check tendered for payment to initiate an electronic debit to the check writer's account. The electronic debit becomes an electronic transaction subject to the requirements of Regulation E.

Check Digit – The final digit of a routing/transit number, which may be used to test the validity of a specific routing/transit number.

Check Truncation – 1. Traditional definition: Deposited checks are held at the financial institution or Federal Reserve Bank of first deposit instead of being sent to the drawee financial institution. Information from the checks is transmitted electronically from the truncation financial institution to the drawee financial institution. 2. Additional definition: Checks tendered in payment at non-financial institution locations are held by the payee or by the maker (check writer), and the payment initiated by the check is made electronically.

CIE (Customer Initiated Entry) – An automated consumer transaction that allows consumers to originate an ACH bill payment through their financial institution or a third party bill payment service.

Clearing – Process of collecting the paper or electronic items from the drawee banks after being deposited by a customer.

Clearing House – A voluntary association of depository institutions that facilitates the clearing of checks or electronic items through the direct exchange of funds among members

Collected Funds – Funds for which final payment has been received.

Company Batch/Header Record – The records(s) contained within an ACH file, which described the originators(s) of an ACH transaction(s) and the types of transactions within that batch.

Company Identification Number – The number in the company Batch/Header Record that identifies the originating company to the ODFI.

Compensating Balances – The balances a company must maintain at a bank to compensate for credit accommodations and credit services.

Consumer – Usually refers to a natural person not engaged in commercial transactions.

Consumer Account – A deposit held by a participating DFI and established by a natural person primarily for personal, family, or household use, and not for commercial use.

Controlled Disbursement – A disbursement arrangement where a company is notified early in the day of the dollar amount of items waiting to clear the account later in the day, so they can fund the account with the exact amount to clear the items.

Correspondent Bank – A bank that accepts deposits and performs banking services for other banks. Correspondent banking arrangements exist between local banks and banks located throughout the world.

Credit – An entry to the record of an account to represent the transfer or placement of funds into the account.

Credit Risk – The risk that a party to a transaction cannot provide the necessary funds, as contracted, in order for settlement to take place. Typically, credit-risk-related losses arise from the failure or bankruptcy of a company.

D
Debit – An entry to the record of an account to represent the transfer or removal of funds from the account

Depository Financial Institution – A financial institution able to receive deposits from its customers or credits from the Federal Reserve Bank.

Direct Deposit – An ACH service that provides for the electronic transfer of funds directly into the account of a payee, usually an employee receiving pay or a Social Security beneficiary receiving retirement benefits.

DPI – Amount of dots per square inch in a given font (printing term)

E
ECK (Electronic Check) - A payment transaction which originally started out as a paper check, but which has been completely converted to an ACH transaction at the point of purchase or in the case of a redeposit paper check, reinsertion into the financial system. The original paper item is either returned to the check writer at the point of purchase or retained by the collection agency.

E-Com – Electronic Commerce (business conducted on the internet)

ECR – Short for Electronic Check Recovery.

Electronic Funds Transfer – Any transfer of funds initiated through a terminal, telephone, computer or magnetic tape for the purpose of instructing or authorizing a financial institution to debit or credit an account.

Electronic Funds Transfer Act – The law passed by the US congress in 1978, which set out the rights and obligations of consumers and their financial institutions regarding the use of electronic systems to transfer funds. This act is implemented in the Federal Reserve Bank's Regulation E.

Element – The smallest item of information in a transaction set. Analogous to a “field” of information.

Entry – An electronic item representing the transfer of funds in the ACH system.

Exception item – Any entry that requires special attention or processing, such as return entries, stop payments, notifications of change, dishonored returns, etc.

F
FAQ – Frequently Asked Questions

Federal Reserve System – The central bank of the United States created by Congress, consisting of a seven member Board of Governors in Washington, D.C., 12 regional Reserve banks, and member depository institutions that are subject to reserve requirements. All national banks are members; state chartered banks may elect to become members. The Board of Governors and the Reserve Banks supervise state members. Reserve requirements established by the Federal Reserve Board apply to non-member depository institutions as well as member banks. Both classes of institutions have access to Federal Reserve discount borrowing privileges and Federal Reserve services on an equal basis.

Field – One or more consecutive character positions within an ACH entry mapped to contain specific information.

File – A group of ACH entries stored for delivery to an ACH receiving point.

File Header Record – The last record of an ACH file containing information necessary to route, validate, and track the ACH entries contained within the file.

File Trailer Record – The last record of an ACH file indicating termination of the information within the file.

Financial Institution – Any bank, savings and loan, credit union or other institution organized under either national or state banking laws capable of both accepting deposits and making loans.

Fixed Field – A data segment of predetermined length and positioning within an electronic message.

Funds Availability – The time at which the funds from an electronic funds transfer are made available to the customer.

FTC – Federal Trade Commission

H
Hash – A mathematical calculation which creates a single number from critical fields in each transaction entry, as a check against inadvertent alteration of data contents due to hardware failure or program error

I
Individual Identification Number - The number used in an ACH transaction by the originator to identify the receiver

Item – An electronic record representing the movement of funds.

L
Lockbox – A financial institution, which facilitates rapid collection and posting of corporate receivables. Typically, customer payments are mailed to the bank's lockbox for collection, sorting, totaling and recording by the bank rather than by the company that issued the bill.

M  
Machine Readable – Describes data in a form that is processable by a mechanical device without the need for further translation; magnetic tape, MICR, etc.

Magnetic Ink Character Recognition (MICR) Line – The preprinted bottom line of a paper check contains the routing transit number of the financial institution the check is drawn on, the account number of the drawee and the check number printed in machine readable magnetic ink.

Mandatory Field – A mandatory field is necessary to ensure the proper routing and or posting on an ACH entry. Any mandatory field not included in an ACH record will cause that entry batch or file to be rejected by the ACH operator before it ever gets sent to the RDFI.

MATCH – When consumers do not honor the terms of their credit card agreements, the issuing bank for the card may revoke the credit line. If the consumer applies for additional credit, the new creditor queries a credit reporting agency and may learn of the consumer's previous performance, including loss to a previous creditor. The merchant processing banks, also known as “acquiring” banks, do not have a similar credit-reporting agency available that can compile and report information about the way that a business handles its merchant processing responsibilities. The card associations, instead, use a file known as “MATCH.” The MATCH File is a database file, previously and most commonly known as the Terminated Merchant File “TMF.” It is maintained by MasterCard International and is the way by which MasterCard and Visa acquiring banks identify merchants, as well as the principals, which have been terminated for specific reasons.

Memo Posting – An interim procedure in which credits and debits are recorded in individual accounts in a manner that allows financial institutions to reflect deposit information prior to actual posting

N
National Automated Clearing House Association (NACHA) – The national trade association for the electronic payment associations, which establishes the rules, industry standards, and procedures governing the exchange of commercial ACH payments by depository financial institutions

NACHA Format – The ACH record format specifications described in the NACHA Operating Rules and Guidelines, which are the accepted and warranted payment format standards for payments delivered through the ACH network.

Notification of Change – Information sent by an RDFI to notify the ODFI that previously valid information for a receiver has become outdated or that information contained in a pre-note is erroneous. These items have the standard entry class code COR.

O
On-Us – Entries within an ACH file destined to accounts held at the ODFI. These entries are removed from the file before the file is sent to the ACH operator and are posted internally to the appropriate accounts.

Operational Field – The inclusion or omission of an optional field is at the discretion of the Originator of an ACH transaction. While the omission of optional fields will not affect the processing of the item, the Originator must still fill optional fields with blanks or other characters if they do not fill the field with actual information.

Originating ACH Operator – The ACH operator, which receives entries from the ODFI

Originating Depository Financial Institution (ODFI) – The financial institution, which delivers ACH entries directly or indirectly through a third party to its ACH operator.

Origination – The process of creating ACH entries for submission through an ODFI to the ACH operator.

Originator – The person or organization who has authorized an ODFI to transmit a credit or debit entry to the account of a Receiver with an RDFI, or if the Receiver is also the RDFI, to such Receiver. In some cases the ODFI may also be the Originator.

P
Participant – A company or financial institution that has signed the appropriate agreements to participate in the pilot.

Payment System – A communication system having the provisions to provide financial settlement information

PPD (Pre-arranged Payment or Deposit) – An automated consumer payment application, usually in the context of a standing obligation, which debits or credits the consumer's account at their financial institution to satisfy that obligation. Examples of PPD transactions are Direct Deposit of payroll, Direct Payment of charitable contributions and so forth.

PPD+ (PPD PLUS) – An automated consumer payment application, which carries additional information about the transaction in the single attached addenda record.

Pre-notification (Pre-note) – A preliminary, zero dollar item used to initiate an ACH transaction

R
RCK – Re-presented check entry

Receiver – An individual, corporation or other entity that has authorized a company or an originator to initiate a credit or debit entry to a transaction account held at an RDFI.

Receiving ACH Operator – The ACH operator, who passes entries to the RDFI

Receiving Depository Financial Institution – A financial institution, which receives ACH entries directly or indirectly from its ACH operator

Rejects – Any ACH batch file that has not been accepted by an ACH Operator because it cannot be processed, usually because of a technical error.

Regulation CC – The regulation by the Federal Reserve Bank to implement the law, which mandates the time limits for funds availability on, deposited items.

Regulation E – The regulation published by the Federal Reserve Bank to implement the Electronic Fund Transfer Act mandating consumer rights and obligation with regard to electronic fund transfers.

Required Field – The omission of a required field will not cause rejection of the entry at the ACH Operator level, but may cause rejection of the entry at the RDFI level (for instance, omission of the Receiver's account number.)

Reserve Requirement – A portion of a bank's funds that must be in the form of cash or readily available securities for the protection of depositors. Reserve or clearing balances are used to effect settlement between financial institutions.

Respondent – A financial institution that sends ACH entries to a correspondent bank for collection.

Return Item – Any item, which cannot be processed and is being returned by the RDFI to the ODFI for correction or re-initiation.

Reversal – Any ACH entries or files sent within required deadlines to “correct” or reverse previously originated entries or files.

Routing/Transit Number – Also known as Routing Number, Transit/Routing Number and ABA number. A nine-digit number (eight digits plus a check digit) which identifies a specific financial institution. Routing numbers are administered by the Routing Number Administrative Board under the sponsorship of the American Bankers Association and officially maintained and published by Thomson Financial Publishing.

S
SCAN – Shared Check Authorization Network

SEC (Standard Entry Class) codes– The three-character code within an ACH company/batch header, which identifies the type of transactions within that batch (e.g. CCD, CTX, PPS, etc.)

Settlement Date – The date on which an exchange of funds with respect to an entry is reflected on the books of the Federal Reserve Bank(s).

SSL – Standard Secure Language, A technique by which a message is scrambled into an indecipherable stream of bits for transmission.

SWACHA – South West Automated Clearing House Association

T  
Third Party Processor – A party, which processes ACH files and or items on behalf of one of the participants in the ACH system. Examples of third party processors are payroll processing companies which create ACH files for transmission to the ACH Operator on behalf of an Originator or ODFI, a data processing company which receives incoming ACH files and processes them for an RDFI, or a correspondent bank which processes ACH files for its correspondent. Under the ACH rules, third party processors are essentially invisible; the party they are processing for bears virtually all of the liability and risk for their third party processor's actions.

Transaction Risk – The possibility that a loss will be sustained due to the incorrect transfer on funds. Transaction risk usually arises when a large dollar transaction is treated as if it were a small dollar transaction without transferring all the procedures and security associated with the large dollar transaction to the small dollar system. An example of this would be a transaction that would normally be processed as a wire transfer, with all of the normal associated security procedures for wire transfers, converting to an ACH transaction without having the same security procedures in place.

TRC (Truncated Check Entry) – an entry that originally represented a check, in which the actual check is safe, kept by one of the financial institutions in the chain of deposit and the MICR information is converted to an electronic entry and processed through the ACH network back to the issuing institution. These items carry the Standard Entry Class code TRC.

TRX (Truncated Extended Check Entry) – A series of TRC entries put together as addenda records with the payment item representing the total settlement of the TRC entries for that batch.

U
Unauthorized – An ACH item is “unauthorized” if it was never originally authorized, if it clears for more than was originally authorized, or if it settles earlier than was previously authorized.

Uniform Commercial Code Article 4A – The portion of the Uniform Commercial Code which deals with certain funds transfers, including ACH credit transactions not subject to the Electronic Fund Transfer Act of Regulation E. This law outlines the protections and responsibilities given to the parties to wholesale credit transactions, and sets the legal standard for commercially reasonable security procedures to be used in conjunction with those transactions.

United States Code – The compilation of the general and permanent laws of the United States. Citations to the United States Code look like “15 USC 1693” which is read as “Title 15 of the United States Code, Section 1693.”

V
Variable Length Field – a data segment within an electronic message with a variable length, offset from other data segments by the use of delimiters.

W
Warehouse – “Storage” of pending files until release or settlement date.

WATCH – Worldwide Automated Transaction Clearing House