ACH Payment Processing
May 16, 2006
Copyright
2006, R. James Holton. All rights reserved.
FIRST THING: If you are contemplating paying reports via
ACH, you need to contact your bank and/or processor to get all the required
information and requirements from them.
Anything in this document may be superceded by them.
SECOND THING: The author and Adisoft, Inc. assume no
responsibility for anything said, written or described in this document. The author and Adisoft, Inc. are not
responsible for any loses that may occur, directly or indirectly, by using the
information in this document or by use of the associated software.
THIRD THING: Before using ACH as a payment method, make sure
that you fully understand the process, and its risks, and that you have proper
controls and audit procedures in place to compensate and control the associated
risks.
This document describes the audit and administrative steps required
to process ACH payments in ESS. For
information on setting up your ESS system for ACH payments, consult the “ACH
Payment Setup” document in the “Professional Services Manual.”
Here are some terms that will be used in this document:
- Account
number – An account number is assigned by a bank to either a checking or
savings account. It is unique within
the bank. Account numbers are not
standard and come in different lengths.
The account number is found in the microcode at the bottom of a
check.
- ABA
Number – “ABA” stands for
“American Bankers’ Association.”
This group assigns each bank a unique number with is called an “ABA
Number.” An ABA Number is comprised
of 8 digits with the first two digits tied to a specific Federal Reserve
district.
- ACH –
Stands for “Automated Clearing House.”
A clearing house is a collection of banks that exchange
checks. This allows individuals to
write checks and have them cleared effectively. When ACH is used as an adjective for a
electronic file, it is used interchangeably with NACHA.
- NACHA
– Stands for “National Automated Clearing House Association,” which is the
body that makes the standards for various clearing houses.
- Prenote
– Prenote stands for “pre-notification.”
A prenote is a transaction that tests the validity of a routing
code, account and associated information.
Prenotes are sent in advance of payments to ensure that the payment
will be processed.
- Routing
Code – This is a bank’s ABA
number plus a check digit. The
Routing Code is 9 digits and is found in the microcode at the bottom of a
check.
Setting up a user for ACH
To setup a user for ACH payments, follow these steps:
- Select
the “User ACH info” option in the “User File” section of the Audit module.
- Locate
the user by either searching on the last name or personnel number. After you’ve found the user, Edit the user record.
- Supply
the following five pieces of information for the user:
- Reimbursement
method – enter either PRENOTE or ACH.
If you enter PRENOTE, it will be necessary to prenote this user
prior to releasing payments. If
you enter ACH, the user will be added to the ACH transfer when the end-of-day
process is run and the user will not be added to the prenote
process. Follow your procedures.
- Bank
Routing Code – Enter the 9 digit routing for the user. This number will appear at the bottom
of a check in the microcode. The
user can also get this number from the bank
- Account
# - Enter the user’s account number.
This number will appear at the bottom of a check in the
microcode. The user can also get
this number from the bank or from their bank statement.
- Is
this a savings account? – A “Yes” indicates that this is a savings
account. A “No” indicates that
this is a checking account.
- Has
this been pre-noted? – Enter “Yes” if you have previously prenoted this
account.
Prenoting
Check with your bank or processor about prenoting. They will fill you in on the rules that you
need to follow regarding prenotes. If you prenote, currently ESS will create a
separate prenote feed that can be submitted to your bank or processor. The prenote feed will prenote all users that
have PRENOTE as their reimbursement
method. As part of creating the feed, a
user, who is being prenoted, will have their reimbursement method changed from
PRENOTE to VERIFYING. Also, users with a
“Has this been prenoted?” flag set to “No” and ACH as their reimbursement
method will also appear in the list and if checked, have their reimbursement
method changed to VERIFYING and be included on the prenote feed. If you have to
rerun the feed, you’ll need to reset the users’ payment methods to PRENOTE
for users that you want to prenote. To
create a prenote feed, follow these steps:
- Select
the “Prenote Users” option under the “Process” section of the Audit
module.
- You
will a list of users that have been selected for prenoting. If you do not want to prenote a specific
user, uncheck the box in front of the user. Only users with checked boxes will be
added to the feed.
- To
create the prenote file, click the “Release the…” button at the bottom of
the screen.
- The prenote
file is located in your end-of-day folder under the name “NACHA.PRE.” Your end-of-day folder is defined in the
system.xml file with the folder subelement under the endofday
element. See the “Professional
Services Manual” for more information.
- Transfer
the prenote file to your bank or processor per their directions.
Releasing pre-notes
After a specified number of day (e.g., 10 days), if you
don’t receive a response that a prenote has failed, you can assume that the
information for the prenoted user is correct.
You have two ways of doing this:
- Edit
the user’s “User ACH Info” screen under the “User File” section. Change VERIFYING to ACH.
- Run
the “Prenoting OK” option under the “Process” section. Users that are checked will have their
reimbursement method changed from VERIFYING to ACH when you click the
“Allow checked…” button. Users are
automatically checked when their prenote date is 10 days in the past. Users can be manually check and
unchecked.
Maintaining the calendar.xml
file
The calendar.xml
file is very important. The NACHA feeds
needs to be able to calculate two business days from any feed date. It can account for weekends, but must be told
when “banking” holidays occur so it can compensate for them. The calendar.xml
file contains the dates for future bank holidays and needs to be accurately
maintained if the NACHA feed is used.
Consult the “ACH Payment Setup” section of the “Professional Services
Manual” for more information.
The NACHA payment file
The NACHA payment is run as part of the end-of-day process
and placed in the end-of-day folder. The
default file name is NACHA.FIL. The name
of the NACHA payment file can be customized with the subelement nacha_file_name under the endofday element in the system.xml
file. Consult the “Professional Services
Manual” for more information on file naming.
After the NACHA payment file has been created, it should be transferred
to your bank or processor via their directions.
Minimum suggested controls
The “Latest Payment Report” provides an ACH handoff number
under the “Payment/Feeds” section. This
number should be compared against the payment totals on the ACH feed.(*) Any difference should be understood and
accepted as valid before transmitting the file.
(*) Currently ESS does not provide a “NACHA File
Report.” You’ll probably need to rely on
your bank/processor for NACHA file totals.
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