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As a leader in efficient, reliable ACH payments, we developed a resource for understanding key terms related to the Automated Clearing House (ACH) Network, the electronic funds-transfer system used by U.S. financial institutions that processes more than 23 billion transactions each year.

This resource contains key terms explaining the ACH Network, with definitions coming from NACHA and other industry leaders. Some of these definitions may seem confusing, and that’s because they really are.

We’ve linked to references to provide more information about specific terms:



ACH Authorization

An originator must obtain authorization from the receiver to originate one or more entries to the receiver’s account.

ACH Credit

A transaction pushing funds into an account (example: direct deposit of payroll).

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ACH Credit Entry

An ACH credit is when the funds are electronically deposited into a bank account (i.e., direct deposit of payroll).

ACH Debit

A transaction pulling funds from an account (example: monthly mortgage payment).

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ACH Debit Entry

An ACH debit is when the funds are electronically withdrawn from a bank account (i.e., paying a utility bill).

ACH Network

Serves as the center of commerce in the United States by transferring money and information directly from one bank account to another. Every year this incredibly powerful network moves the equivalent of the GDP of the United Statesthe largest economy in the world—twice.

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ACH Operator

The Federal Reserve Banks and The Clearing House that enable the clearing and settlement of payments between financial institutions.

ACH Return

A credit or debit entry initiated by an RDFI or ACH Operator that returns a previously originated credit or debit entry to the ODFI within the time frames established by Nacha Rules.

ACH Reversal

A credit or debit entry that reverses an erroneous entry. Must be transmitted to or made available to the RDFI within five banking days following the settlement date of the erroneous entry.

Addenda Record

An ACH record that contains supplemental data related to an ACH entry. This information may be needed to completely identify an account holder (s) or provide information concerning a payment to the RDFI and the Receiver.

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API (Application Programming Interface)

APIs allows two electronic entities to communicate with each other. Building upon the capabilities of open communications networks and cloud-based access to services, companies can create APIs which rely on existing services for part of their solution.

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Bank Account Verification

A best practice when processing an ACH transfer that validates that the user attaching a bank account actually owns the account.

Banking Day

The business day of a bank, which includes all the days when offices of a bank are open for business to the public.

Banking Holiday

Banks are closed on these days each year.

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The sending of ACH transactions by the Originating Depository Financial Institution in regular, predetermined intervals.

Beneficial Owner

A legal entity or person other than the registered owner who enjoys the benefits of ownership of a legal entity (e.g., an owner of voting interest or shares in a company).


Calendar Day

Any day of the week, including business days and weekends.

Closed Loop Payment System

Closed loop payment systems operate without intermediaries, where the end parties have a direct relationship with the payments system.

Correlation ID

A unique identifier that is attached to requests and messages that allow reference to a particular transaction or event chain.


Data Tokenization

The concept of replacing high-value data with a reference or low-value representation of that data in a transaction.

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Deferred Net Settlement

A system where final settlements occur between participating banks at the end of a predefined settlement cycle.

Dishonored Return

An erroneous return may be sent back (or dishonored) to the RDFI within five banking days of the settlement date of the original return.

Dwolla Balance

A funding source that can be utilized like a “wallet” for holding a stored value of USD funds. The balance is made available for account types that have completed “KYC” requirements, which includes customers of Dwolla and their end users that have been onboarded as Verified Customers.


Funding Source

Any financial institution, bank or other funding entity providing liquidity to accommodate various payment flows.


Know Your Customers (KYC)

An expectation recommended by FinCEN requiring businesses to improve the view of customers’ identities and the nature of the relationship through policies and planned monitoring that support the business’ risk potential.


Mass Payment

A method of paying out multiple recipients simultaneously and can be set up as one-time transactions or, if the payment amount is always the same, as recurring automatic payments.

Master Balance

An account that is owned by a verified user and tied directly to a business on Dwolla’s platform that can act like a “wallet” for holding a stored value of USD funds.


An easy way to verify a customer bank account, by sending two small deposits to the account for verification.

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NACHA (National Automated Clearing House Association)

The group that brings together diverse stakeholders to develop rules and standards for the ACH Network that foster compatibility and integration across a range of payment systems.


ODFI (Originating Depository Financial Institution)

From a risk management perspective, the gatekeeper to the ACH Network that is responsible for each ACH transaction it originates. Each ODFI warrants that the transaction is properly authorized and complies with the NACHA Operating Rules.

On-Demand Transfers

Allows Dwolla customers to receive variable amounts from a payer’s bank account via an ACH transaction—perfect for companies with usage-based business models, such as utilities or advertising platforms.

Open Loop Payment System

Open loop payment systems operate on a hub-and-spoke model requiring intermediaries (almost always banks or depository financial institutions) to join the payments system, then form business relationships with end parties.

Open Source Software

Freely available open source packages allow young companies to compress their development cycles to rapidly implement their ideas.

Operational Notifications

Direct communications sent to a user when there is activity on their account.

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The entity that starts the payment transaction. The Originator is the consumer, business or government organization that initiates the payment process and is authorized to do so.

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The transfer of value from one end party to another.

Pooled Account

An account that allows a business to easily collect funds from different sub-accounts belonging to your company at the financial institution–money moves from many bank accounts to one account.


RDFI (Receiving Depository Financial Institution)

The RDFI accepts the ACH Payment and posts it to the Receiver’s account.

Real Time Gross Settlement (RTGS)

The continuous process of settling payments on an individual basis, in real time, rather than submit files at the end of the day of at predetermined intervals throughout the day.


The intended recipient of the ACH transaction. The Receiver authorizes the Originator to initiate a transaction to either “push” funds to or “pull” funds from the Receiver’s bank account, depending on whether an ACH credit or debit transaction was generated by the Originator.

Regulation E

Refers to 12 CFR Part 1005, a regulation issued by the Consumer Financial Protection Bureau, pursuant to the Electronic Funds Transfer Act, that establishes the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer services.

Return Code

A notification of a payment return or correction for a business or user.

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Same Day ACH

Delivery of available funds within the same business day, not two to four.

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A testing environment that isolates untested code changes and outright experimentation from the production environment or repository.


The actual movement of funds from one financial institution to another that completes a transaction.

Settlement Account

An account established and maintained by a merchant with a financial institution through which the deposit of funds for debit entries and the extractions of funds for credit entries are made.

Standard Entry Class (SEC) Code

A three character code to identify the format and application being used for the payment type.

Sub Account

A segregated account nested under a larger account that contains funds that are held at a financial institution.


Third-Party Payment Providers

An intermediary between a company and bank to process, verify and accept ACH transactions on behalf of a company through a secure internet connection.

Trace ID

A unique reference number assigned to each ACH entry, also known as a Trace Number which can be used to “trace” the location of the transfer.

Transaction Limit

The maximum value assigned per transaction within the Dwolla platform as agreed upon by Dwolla and its clients; determined on a per-client basis.

Transfer Cutoff Time

The time at which a bank stops processing electronic transfers. Transactions sent after the cutoff time are processed the next banking day.

Transfer Status: Cancelled

The sender has cancelled the transfer and the money has been deposited or withdrawn back to/from the sender’s bank account.

Transfer Status: Failed

A result of an ACH return from the RDFI.

Transfer Status: Pending

A reserved payment amount that hasn’t been debited or credited to/from the account yet.

Transfer Status: Processed

The transfer has been completed and the funds have been credited/debited to/from the receiver’s account. Please note – return codes may still come in after a transaction shows as processed.


Untimely Return

An ACH return that is received outside of the permissible time frames in Nacha Rules. If Dwolla is notified of an untimely return within the stated time frames (five banking days of the settlement date of the return), we may be able to dishonor the return.

User Experience (UX)

The overall experience of a person using a product such as a website or computer application, especially in terms of how easy or pleasing it is to use.



When a new event is created, a new webhook is created to deliver that event.

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White Labeled

A product or service produced by one company that other companies rebrand to maintain a consistent user experience.

Our understanding of the best ways to navigate these complexities is why innovative companies choose Dwolla as its payment integration to the ACH Network. Would you build your own refrigerator or would you buy a new one from the store?

Contact us to talk through how we can save your business time and money with digital payments.