If you’re a merchant managing your cash flow, chances are that you’ll need to understand the time that it takes for ACH transactions to process and settle. While processing speeds have increased significantly since its inception in the 1970s, ACH payments are not real-time and take a couple days to “complete”, due to the verification process that happens after a transaction “clears”.

ACH 101: An Introduction

ACH transactions work as a more efficient and cost-effective alternative to paper checks.

Transactions occur through the Automated Clearing House Network, which connects more than 25,000 financial institutions across the United States.  ACH payments are governed by NACHA, which establishes and enforces the processes and rules for those transactions.  Transactions are processed in batches throughout the day, meaning they’re accumulated by the processor (and the financial institution) before being processed in bulk.  You can learn more about how ACH works at the following link: ACH 101: Understanding the Automated Clearing House.

What are settlement times and why are they important?

The settlement time, or “settlement period” is a predetermined number of banking days that payment processors will hold onto your ACH Debit funds before they get deposited into your bank account.

(It’s important to note that settlement periods do not apply to ACH Credits.  Successfully submitted ACH Credits will always post to the Receiver’s account by 8:30 AM (Central) on the following banking day.  This post will focus on ACH Debits.)

Similar to paper checks, ACH transactions can be returned (or “bounce”) for a variety of reasons such as insufficient funds, invalid accounts, etc.

Unlike paper checks, however, the funds for ACH transactions are cleared between banks automatically, even before the Receiver’s account or account balance is verified by the RDFI, or the Receiving Depository Financial Institution (e.g., your customer’s bank).

RDFIs can automatically reverse those funds by submitting an ACH Return Code back to the ODFI, or the Originating Depository Financial Institution (e.g., the processor’s bank where your funds are being held).

NACHA Rules state that RDFIs must return Debit Entries (excluding consumer unauthorized) within 2 banking days. While 99% of these returns will be received according to the rules, some may come in a day or two later. Processors will enforce a commensurate settlement period before releasing the funds into your bank account, usually 2-5 business days.

How do settlement periods work with Actum?

As a third-party processor, Actum enforces both standard and accelerated settlement periods.

The following figure demonstrates an overview of how ACH transactions work with Actum:


How ACH Processing Works

Figure 1: Actum’s ACH Processing Flow

As you can see, ACH Debits are held during a settlement period. (Credit funds do not require the same level of verification and are made available to the Receiver on the same or next business day.)

Often, businesses want faster access to their ACH Debit funds, and many of our clients ask us about shortening their settlement periods.

For highly qualified merchants, we offer Accelerated Payouts, including Next Day Payouts, which shorten settlement period times to 2, 1, or even 0 business days.  Each case is different and our Underwriting Department will evaluate your business on its financial strength and past performance (especially your history of returns).

Bottom Line: Key Takeaways

When using ACH, settlement periods are critical to understand in order to predict and manage your cash flow. When evaluating payment processors, you’ll want to make sure that you choose one that can understand and evaluate your cash needs, in order to identify options to reduce your settlement period and streamline your accounts receivable.

For more information about processing with Actum, we invite you to Contact Us!

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