How Banks and Third-Party Processors Obtain Approval from Receiver Accounts for ACH Payments

Ensuring the accuracy and security of ACH transactions is a critical responsibility for both the originator and the receiver. This article explains the processes and methods used to obtain the necessary authorization from the receiver's account for an ACH payment, along with the NACHA guidelines.

The Verification Process: Ensuring Account Information Accuracy

The primary responsibility of the originator – or the originating entity – is to verify the receiver's account information before initiating a transaction. This verification step is crucial to prevent errors and fraud. While larger entities might employ in-house systems to manage this process, a third-party ACH processor can simplify it by handling the verification for the originator.

Verifying Account Information through NACHA Rules

The National Automated Clearing House Association (NACHA) has established specific rules and methods for verifying account information. These include:

Micro-deposits: The most commonly used method, where a small amount is temporarily deposited into the receiver's account to verify the information. Check verification: The use of an existing database of account numbers, primarily for the largest originators and receivers. Pre-notification entry: Sending a zero-dollar transaction to verify the receiver's account at the same time as obtaining the account number and routing code. Account verification bank login: Authorizing a transaction by having the receiver log into their bank account. Debit card number authorization: Using the receiver's debit card information for verification.

Although technically an ACH transaction can be completed without NACHA verification, it is highly uncommon due to the risks involved, such as fraud and erroneous transactions.

Obtaining Agreement for ACH Transfers

Obtaining the agreement of the receiver is the obligation of the originator, not the receiver's bank. This agreement can be obtained via:

Written agreements: Whether in paper form or electronic, these agreements are typically signed at the same time the account number and routing code are obtained.

These agreements are essential to ensure the legitimacy of the transaction and the rights and responsibilities of both parties are clearly defined.

Conclusion

Ensuring the accuracy and legitimacy of ACH payments is a multifaceted process that involves the originator, receiver, bank, and third-party processors. By following NACHA guidelines and obtaining proper agreements, these transactions can be conducted with confidence and minimal risk. Whether managed in-house or through a third-party processor, the responsibility lies with the originator to initiate the verification and agreement processes.

Keywords

ACH payments, verification process, third-party processors, NACHA rules, micro-deposits