ACH Settlement

ACH settlement is the process where electronic payments are cleared and transferred between bank accounts through a central network managed by the Federal Reserve. This is how ACH transactions move money from one bank to another.

How ACH Settlement Works

ACH is a batch processing system - transactions are grouped together and settled in waves, not in real-time.

Think of it like mail delivery: you put a letter in the mailbox (initiate ACH), it goes to a sorting facility (Federal Reserve), gets routed to the destination post office (receiving bank), and finally reaches the recipient (final account).

The Process:

• Day 0 - Transaction initiated and queued at your bank (ODFI)
• Batching - Your bank groups thousands of transactions into batch files
• Central Processing - Federal Reserve sorts transactions and calculates net settlements between banks
• Distribution - Receiving banks (RDFIs) get transaction details and post to accounts
• Day 1-2 - Funds available to recipient

Example: A debt settlement company processes 2,500 client deposits Monday morning. By Tuesday morning, funds are debited from client accounts and available in the company's escrow account - approximately 24 hours from initiation to availability.

Types of ACH Settlement

• Standard ACH - 1-2 business days, $0.20-$0.50 per transaction (most common)
• Same-Day ACH - Settles same day if submitted by deadline, $1.00+ per transaction
• Next-Day ACH - Guaranteed next business day, mid-range pricing

Why Settlement Takes Time

• Risk Management - Time to verify funds exist and detect fraud
• Batch Efficiency - Processing millions together keeps costs low
• Return Handling - Allows banks to reject problematic transactions‍
• Regulatory Compliance - Built-in fraud screening and AML checks