Glossary of Common ACH Processing Terms

For merchants seeking clarification on commonly used terms in the ACH processing world, this glossary provides clear definitions along with our blog entry.

Terminology

ACH Network

• The batch-processing, store-and-forward electronic funds transfer network governed by the NACHA Operating Rules, through which ACH Transactions are routed between ODFIs and RDFIs via an ACH Operator.

ACH Operator

• The Federal Reserve Banks and/or EPN (Electronic Payments Network), each acting as an intermediary within the ACH Network.
  
  

ACH Transaction

• Any Debit Entry or Credit Entry transmitted through the ACH Network
  
  

Administrative Return

• A Return for an administrative reason (including, without limitation, incorrect account number, account closed, or non-transaction account) as identified under the applicable NACHA return-rate framework.
  
  

AOP Exemption Jurisdiction(s)

• Any state or jurisdiction in which Company processes ACH debit Transactions pursuant to the agent-of-payee exemption or a comparable exemption from state money transmission licensing requirements applicable to payment processors collecting funds owed to a payee-merchant, as determined by Company in its sole discretion based on applicable law. Company may update its AOP Exemption Jurisdiction determinations from time to time in response to changes in applicable law, regulatory guidance, or Company’s legal analysis without liability to Client. 
  
  

Agreement

• The Master Services Agreement, together with all Schedules and Exhibits attached hereto, as amended from time to time in accordance herewith. 
  
  

Application

• The Client Application & Authorization submitted by Client to Company for underwriting and evaluation purposes only. The Application is not part of this Agreement and does not create any binding obligation on Company to provide Services, establish any Commercial Terms, or constitute acceptance of any term of this Agreement.

Authorization

• The written or electronic consent required under the NACHA Operating Rules in order for Client to initiate ACH Debit or Credit Entries to a Receiver’s account. 
  
  

Bank Partner

• Any ODFI, sponsor bank, settlement bank, or other financial institution through which Company facilitates the origination, settlement, or clearing of Transactions, whether under the ACH Network, the RTP Network, or otherwise. 

Business Day

•  Monday through Friday, excluding federal banking holidays as observed by the Federal Reserve Banks.
  
  

Canadian EFT

• An electronic funds transfer processed through the Canadian payment system and governed by applicable Payments Canada rules. 
  
  

CCD

• Corporate Credit or Debit, a NACHA Standard Entry Class (“SEC”) code generally used for business-to-business ACH transactions.
  
  

Client

• The entity identified in Exhibit B that has entered into this Agreement with Company; also referred to herein as “Originator,” “Merchant,” or “you.” 
  
  

Commercial Terms

• The pricing, fee schedule, reserve methodology, hold periods, exposure limits, SEC codes, PIDs and SubIDs, settlement timing, and other underwriting-determined parameters set forth in Exhibit B, as may be amended from time to time. Exhibit B is the sole and exclusive statement of all binding Commercial Terms; no proposal, quote, term sheet, or preexecution communication shall constitute or modify Commercial Terms.
  
  

Consumer Report

• Has the meaning set forth in the Fair Credit Reporting Act, 15 U.S.C. § 1681a(d).
  
  

Credit Entry

• An ACH Transaction intended to deposit funds into a Receiver’s account that is not a Refund.
  
  

Credit Reserve

• The prefunded balance maintained for the benefit of Client’s ACH credit and RTP origination activity pursuant to Article VII and applicable Bank Partner settlement requirements.
  
  

Customer

• The end-user consumer or business entity that is the counterparty to Client’s transaction, whose account is debited or credited as a result of a Transaction initiated by Client.
  
  

Debit Entry

• An ACH Transaction intended to withdraw funds from a Receiver’s account.
  
  

Effective Date

• The date on which (a) both this MSA and Exhibit B have been executed by authorized representatives of both parties and (b) Company has issued written activation notice to Client confirming that Client’s account has been activated. If Exhibit B specifies an Effective Date, that date shall govern provided both execution conditions have been satisfied as of such date.
  
  

EFT

• An electronic funds transfer originated through the Payments Canada payment system pursuant to the CPA Rules, including without limitation pre-authorized debit transactions governed by CPA Rule H1, as amended from time to time.
  
  

EFTA

• The Electronic Fund Transfer Act, 15 U.S.C. § 1693 et seq., and its implementing regulations, including Regulation E.
  
  

Entry

• Any ACH Credit Entry, ACH Debit Entry, or Canadian EFT Debit Entry, as applicable.
  
  

Excessive Returns

• A return rate that exceeds any threshold established by NACHA or an applicable Payment Association.
  
  

Exposure Limit

• The per-item, daily, and/or monthly dollar and count limits established by Company and/or the applicable Bank Partner for Entries originating from Client’s account, as set forth in Exhibit B and subject to adjustment under Article X.
  
  

Facilitator

• Company’s role as intermediary and processing facilitator.
  
  

FBO Account

• A demand deposit or other transaction account established and maintained solely in the name and control of a Bank Partner for the receipt, holding, and disbursement of funds in connection with MT-Routed Transactions.
  
  

FBO-Routed Capacity

• The Processing Capacity in which Company routes a Transaction to a Bank Partner for processing through an FBO Account because Company has determined, in its sole discretion, that the Transaction constitutes or may constitute money transmission under applicable state law and that neither Licensed MT Capacity nor AOP Capacity is available or appropriate for such Transaction, as further described in Section 7.9(c).
  
  

FedNow

• The real-time payment rail provided by the Federal Reserve.
  
  

FinCEN

• The Financial Crimes Enforcement Network of the U.S. Department of the Treasury.
  
  

Fixed Reserve

• A reserve requirement expressed as a fixed dollar amount.
  
  

IAT

• International ACH Transaction, as defined under the NACHA Operating Rules.
  
  

Licensed Jurisdiction(s)

• Any state or jurisdiction in which Company holds a current, valid money transmission license. Company may add or remove Licensed Jurisdictions from time to time as licenses are obtained, renewed, or surrendered, and will provide reasonable notice to affected Clients of any removal.
  
  

Merchant Domicile State(s)

• (a) The state in which Client is legally organized or incorporated; and (b) the state in which Client maintains its principal place of business, as disclosed in the Client Application & Authorization and confirmed in Exhibit B. Client shall promptly notify Company in writing of any change to its state of legal organization or principal place of business.
  
  

MT-Routed Transaction

• Any Transaction that Company, in its sole discretion, determines constitutes or may constitute money transmission under applicable state law.
  
  

NACHA

• The National Automated Clearing House Association, or its successor organization, responsible for establishing, revising, and enforcing the Operating Rules for the ACH Network.
  
  

Net Client Payment

• The net settlement amount due and payable to Client, calculated after deducting all applicable fees, reserves, holds, returns, unauthorized returns, and other offsets.
  
  

NOC

• A Notification of Change, as defined under the NACHA Operating Rules.
  
  

OBO

• On-behalf-of, referring to Company’s role as intermediary under The Clearing House RTP OBO rules in originating RTP Credit Transfers on behalf of Client.
  
  

ODFI

• The Originating Depository Financial Institution that receives ACH Transactions from Company and sponsors their entry into the ACH Network.
  
  

Originator

• Client, in its capacity as the party originating Entries and Transactions through Company and the applicable Bank Partner.
  
  

Payment Association

• NACHA, The Clearing House, the Canadian Payments Association, or any other association or payment network operator governing Transactions processed under this Agreement.
  
  

Per-Occurrence Fee Schedule

• The schedule of per-occurrence fees, penalty pass-throughs, and incidental charges published by Company at www.actumprocessing.com/fees, as updated by Company from time to time upon notice to Client in accordance with Section 1.4.
  
  

PID / SubID

• Parent Identification Number (PID) and Sub-Identification Number (SubID), unique identifiers assigned by Company for transaction processing, reporting, risk management, underwriting, and account administration.
  
  

PPD

• Prearranged Payment and Deposit, a NACHA SEC code generally used for consumer ACH transactions based on written authorization.
  
  

Processing Capacity

• The legal and operational capacity in which Company or its Bank Partner processes a Transaction, which may include: (a) Licensed MT Capacity, where Company acts pursuant to an applicable money transmission license; (b) AOP Capacity, where ACH debit transactions are processed pursuant to an applicable agent-of-payee or similar exemption; and (c) FBO-Routed Capacity, where Transactions are routed through a Bank Partner account, including an FBO Account, because Company has determined such routing is required or appropriate under applicable law, network rules, or risk controls.
  
  

Processing Partner

• Any bank partner, financial institution, payment processor, network sponsor, settlement provider, sponsor bank, verification provider, or other third-party service provider through which Company facilitates, transmits, verifies, clears, settles, or otherwise supports the Services.
  
  

RDFI

• The Receiving Depository Financial Institution that receives ACH Transactions from the ACH Operator and posts them to Receivers’ accounts.
  
  

Receiver

• The individual or organization that has authorized Client, as Originator, to initiate a Transaction to or from an account maintained at the RDFI.
  
  

Refund

• A credit directly tied in whole or in part to a prior Debit Entry.
  
  

Reserve Collateral

• Only those reserve balances, holdbacks, and collateral amounts expressly held by Company in its own name or for its benefit pursuant to Article VII as security for Client’s obligations. Reserve Collateral expressly excludes any funds maintained in a Bank Partner FBO Account, settlement account owned or controlled by a Bank Partner, or any funds not subject to Company’s direct contractual control rights under this Agreement.
  
  

Reserve Amount

• The security reserve balance required to be maintained by or on behalf of Client in the form of a Fixed Reserve, a Rolling Reserve, or both, as determined by Company pursuant to Article VII.
  
  

Return

• Any Transaction returned or rejected by the ACH Operator, ODFI, or RDFI.
  
  

Rolling Reserve

• A reserve expressed as a percentage of Transaction volume and withheld pursuant to Article VII.
  
  

RTP Network

• The Real-Time Payments network operated by The Clearing House Payments Company LLC.
  
  

RTP Transaction

• A credit transfer originated through the RTP Network or FedNow in accordance with Schedule C.
  
  

Rules

• The NACHA Operating Rules and Guidelines, TCH RTP Credit Transfer Rules, CPA Rules, and all other applicable operating rules, requirements, and guidelines of any Payment Association, Bank Partner, or other network operator governing Transactions processed under this Agreement, as amended from time to time.
  
  

SEC Code

• The Standard Entry Class code, as defined by NACHA, applicable to a given ACH Transaction (e.g., PPD, CCD, WEB, TEL), as specified in Exhibit B.
  
  

Services

• The transaction processing and related services provided by Company to Client pursuant to this Agreement, as specified in the applicable executed Schedules.
  
  

Settlement Account(s)

• One or more bank accounts established and maintained by Client at a financial institution and designated by Client in Exhibit B or through Company’s account management process, through which settlement credits, fee debits, return debits, and other adjustments are transacted. Client may designate up to three (3) bank accounts for the following purposes: (a) a Settlement Credit Account, into which Company will credit net settlement amounts owed to Client; (b) a Returns/Adjustment Debit Account, from which Company may debit returned items, chargebacks, and reversal amounts; and (c) a Fee Debit Account, from which Company may debit Fees, per-occurrence charges, and other amounts owed by Client. If Client designates only one account, that account shall serve all three purposes. Company shall rely on the most recently designated account information on file and shall not be liable for misdirected credits or debits resulting from Client’s failure to update account designations.
  
  

TEL

• Telephone-Initiated Entry, a NACHA SEC code for debit transactions authorized by oral communication via telephone.
  
  

TCH

• The Clearing House Payments Company LLC, operator of the RTP Network.
  
  

Third Party Sender/Processor

• Company, in its role as a third-party service provider facilitating the origination of Entries on behalf of Client through an ODFI, as contemplated by the NACHA Operating Rules.
  
  

Transaction

• Any ACH Transaction, EFT Transaction, RTP Transaction, verification inquiry, or authentication request submitted by Client to Company under this Agreement.
  
  

UCC

• The Uniform Commercial Code, as adopted and in effect in the State of Texas.
  
  

UCC Article 4A

• Article 4A of the Uniform Commercial Code.
  
  

Unauthorized Return

• Any ACH item returned with NACHA return codes R05, R07, R10, R11, R17, or R29, or any other return codes designated as unauthorized under the NACHA Operating Rules, as updated from time to time.
  
  

Unilateral Amendment

• An amendment made by Company without Client’s written consent, as described in Section 22.4.
  
  

Verification Services

• The data authentication, open banking, account verification, and identity services described in Schedule D.
  
  

WEB

• Internet-Initiated Entry, a NACHA SEC code for debit transactions authorized via the Internet.