Automated Clearing House, or ACH, means a funds transfer system governed by the ACH Rules which provides for the interbank clearing of electronic entries for participating financial institutions (31 CFR 210.2(f)). It is the rail that carries direct deposit, vendor payments, and most recurring debits between US bank accounts.
The definition points at a rulebook rather than at a statute, and that is the unusual part. ACH is not defined by what the money is for. It is defined by which network it travels on and whose rules it travels under.
The Rulebook Is Private, and It Is Incorporated by Reference
The rules ACH runs on are written by a private association, not by a regulator. For purposes of that part, ACH Rules means the 2021 Operating Rules and Guidelines, including Supplement Number 1-2021, both incorporated by reference, published by Nacha, a national association of regional member clearing house associations, ACH Operators, and participating financial institutions located in the United States (31 CFR 210.2(a)).
Two things follow from that sentence and both matter to a firm reading a bank agreement. The operative rulebook is a named edition rather than whatever is current, because it is incorporated by reference. And the body that writes it is a membership association of the institutions that use it, so the rules are industry rules given legal effect, not agency rules.
The regulation also says what happens to anything it does not itself define: any term that is not defined in that part shall have the meaning set forth in the ACH Rules (31 CFR 210.2). The rulebook is the default dictionary.
Federal Payments Run on a Modified Version
Where the United States government is the payer, the rulebook applies with named pieces switched off. Applicable ACH Rules means the ACH Rules, except a list of provisions the regulation sets out one by one (31 CFR 210.2(d)).
The carve-outs are specific rather than thematic, and the regulation names, among others, the subsections and appendices governing enforcement of the ACH Rules and claims for compensation, the section governing the Participating DFI Contact registry, the sections governing the reclamation of benefit payments, the requirement that the Effective Entry Date of a credit entry be no more than two Banking Days following the date of processing by the Originating ACH Operator, the section setting out obligations to enter into agreements with and perform risk management relating to Originators and Third-Party Senders, and the security requirements section (31 CFR 210.2(d)(1) to (5)).
That list is expressly a list of exceptions and it is longer than the extract above. Anyone relying on it should read the paragraph itself rather than a summary of it, including this one.
One carve-out is worth naming because it reaches tax payments directly. The requirements of the International ACH Transactions section shall not apply to entries representing the payment of a Federal tax obligation by a taxpayer (31 CFR 210.2(d)(7)).
Who Counts as an Agency, and What Counts as a Federal Payment
The regulation defines its own perimeter. Agency means any department, agency, or instrumentality of the United States Government, or a corporation owned or controlled by the Government of the United States, and the term agency does not include a Federal Reserve Bank (31 CFR 210.2(c)).
Federal payment means any payment made by an agency, and the term includes, but is not limited to, Federal wage, salary, and retirement payments, vendor and expense reimbursement payments, benefit payments, and miscellaneous payments including interagency payments, grants, loans, fees, principal, interest and other payments related to United States marketable and nonmarketable securities, overpayment reimbursements, and payments under Federal insurance or guarantee programs for loans (31 CFR 210.2(i)).
Includes, but is not limited to is doing real work in that sentence. The four categories are examples, not the boundary.
Why an Accounting Practice Meets the Term
ACH is a banking term, and it is one an accounting practice handles rather than reads about. It is the mechanism behind direct deposit of wages, behind recurring vendor payments, and behind the collection of authorised debits, so it appears in the bank feed, in the payroll register and in the payment authorisations a client signs.
Where a firm collects account details for it, the artefact used is often a check, and the distinction between the two purposes a check serves is set out in canceled check: a firm collects a voided check to capture a client’s routing and account numbers for ACH or direct deposit, and a canceled check to prove a payment was made.
Common Questions
The regulation defines ACH as a funds transfer system governed by the ACH Rules that provides for the interbank clearing of electronic entries for participating financial institutions (31 CFR 210.2(f)). A wire runs on a different system under different rules. Nothing fetched for this entry describes wire mechanics, so the honest answer stops at the difference in the governing rulebook.
Nacha, described in the regulation as a national association of regional member clearing house associations, ACH Operators, and participating financial institutions located in the United States (31 CFR 210.2(a)). It is a private association whose rulebook is given effect for federal payments by being incorporated by reference into the regulation.
No, not identically. For federal payments the regulation applies the ACH Rules except a named list of provisions, which it calls the Applicable ACH Rules (31 CFR 210.2(d)). A payment between two private parties is not subject to that modification.
At the reconciliation, and at the authorisation file behind it. An ACH entry arrives in a bank feed as a line with an originator name that often does not match the vendor or the client’s own description of the payment, so matching depends on records the bank statement does not carry. On the receipts side, a debit that a client disputes turns on whether an authorisation exists, which is a document question rather than an accounting one.
Accountably places trained offshore accountants and tax preparers inside US CPA and EA firms, and a firm can run a real block of its own bank reconciliation and accounts payable work through a trial task before anything client facing depends on it.
