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How ACH Processing Works at Independent Schools

ach-2Most independent schools accept payments electronically but may have concerns regarding  processing fees that come with credit card payment acceptance.  This is one reason many schools turn to ACH as a less costly method of electronic payment acceptance.  But what is ACH and how does it work?

Electronic check, e-check, and ACH are all interchangeable terms.  The Federal Reserve Bank’s Automated Clearing House network (ACH) is an electronic fund transfer service used to send and receive payments directly between financial institutions. No plastic card is used, and no line of credit is issued. The funds are transferred directly from one institution to another without the middleman of a credit card issuer.  

Since ACH works differently than a credit or debit card payment, it’s good to know how it works.  The first step, of course, is for the payment to be initiated, so let’s use an example of a parent wanting to pay school tuition with an electronic check instead of writing and delivering a paper one.

The Path of an ACH Payment

  • To make an ACH payment, the payer submits his or her payment information (routing number, account number, payment amount) to a school’s online payment page.  
  • After the payment information is submitted, a payment gateway, which is software that encrypts and transmits payment information, confirms that a valid routing number was entered by the payer.  (Unlike credit transactions, however, at this point there is no authorization process involving validation of the bank account number or available funds.)  The payment gateway places the transaction in pending status, and the payer receives instant confirmation that the payment was submitted.
  • Later that day at a predetermined time, the school’s payment gateway sends all pending ACH transactions made that day to the ACH processor.
  • The ACH processor sorts and delivers the payment request to the payer’s bank.
  • The payer’s bank sends a confirmation receipt to the ACH processor that the payment request was received.  
  • The ACH processor informs the payer’s bank to transfer the money to the school’s bank.  

  • The payer’s bank releases the funds from the payer’s account and the school’s bank receives the funds.

  • The ACH processor notifies the payment gateway that the funds were received by the school’s bank.

  • The payment gateway changes the status of the payment from “pending” to cleared or “settled.”

This process from start to finish usually takes between 3 and 5 business days to complete, but a payer’s bank has up to 15 days to validate a payment for it to clear. For example, if there are insufficient funds available of the payer’s account, the payment will fail and the payer’s bank will send a rejected/failed status back to the ACH processor.

If you have any questions about ACH or any form of electronic payment at your school, our school payment experts would be happy to speak with you.  You can reach us at 888 566-0945 x777 or info@diamondmindinc.com.  For existing clients, you can reach our Client Services team at x444.  Thank you!