Skip to main content

Legal

Tax & Accounting

Trade & Supply

Risk & Fraud

News & Media

Books

Developers

Direct deposit

Direct deposit overview

About direct deposit

You can use the application's direct deposit features to create domestic and international ACH files.
If you're new to direct deposit, you can learn more from the terms and definitions at the end of this topic.

International ACH information

All international transactions made via the ACH Network are required to use the International ACH Transactions (IAT) SEC code. This rule applies to all ACH participants and simplifies the process of identifying international transactions by requiring that IAT entries include specific data elements defined by "Travel Rule" in the Bank Secrecy Act (BSA).
important
In all situations, the application assumes transactions originate at a bank within the territorial jurisdiction of the United States. All IAT transactions are considered outbound items, and the destination country must be a country that accepts US Dollars. The application supports international ACH transactions to Canada, Mexico, and the United States.

Workflow

  1. Set up a direct deposit bank account.
  2. Set up direct deposit information
    • For employees (live payroll processing only).
    • For vendors or agents.
  3. Prenote direct deposit files.
  4. Process direct deposits.
    1. Enter and print payroll, vendor, or agent checks.
    2. Create ACH files.

The Automated Clearing House (ACH)

The Automated Clearing House (ACH) network is a nationwide system for interbank transfers of electronic funds. It serves a network of regional Federal Reserve Banks that process the distribution and settlement of electronic credits and debits among financial institutions. ACH payments include:
  • Direct deposit of payroll.
  • Business-to-business payments.
  • Federal, state, and local tax payments.
  • Other types of electronic funds transfers.

ACH files

A simple ASCII-format file that adheres to Automated Clearing House specifications. A single ACH file holds multiple electronic transactions. Think of it like a manila file folder used to store and transmit sheets of paper with information on a single topic. Each transaction within an ACH file carries either a credit or a debit value. Typically, a payroll ACH file contains credit transactions to employees’ checking or savings accounts, and a balancing debit transaction to the employer’s (that is, your client’s) payroll account.

Destination

The Destination bank is the immediate destination. This bank will receive the ACH file.

Effective date

An “effective date” is attached to each and every ACH transaction. For payroll transactions, effective date represents the day when both:
  • debit amounts would actually be withdrawn from the employer’s payroll account, and
  • credit amounts deposited to an employee’s bank account.
An effective date cannot fall on a weekend, Federal Reserve holiday, or on a date that has already passed (a “stale date”). If it does, the transaction will be automatically tagged to settle on the next business day.

Electronic Payment System (EPS) files

EPS (electronic payment system) files are commonly referred to as “transaction files” or “ACH transactions.” They store, for example, employees’ net pay amounts and financial account information. Typically, multiple EPS files make up what is the more well known direct-deposit file, the ACH file.

Kotapay

Kotapay is a third-party processing agent that processes funds electronically via the Automated Clearing House.

National Automated Clearing House Association (NACHA)

The National Automated Clearing House Association (NACHA) oversees the ACH network and is primarily responsible for establishing and maintaining operating rules for the network.
All financial institutions moving electronic funds through the ACH system are bound by the NACHA Operating Rules, which cover everything from participant relationships and responsibilities to implementation, compliance, and liabilities.

Originator

An ACH Originator is typically a company that directs a transfer of funds to or from a consumer account. The Originator bank is the bank where the ACH file is originated.

Originating Depository Financial Institution (ODFI)

The financial institution that deposits ACH files, on behalf of the Originator, into the ACH network.

Prenote (or prenotification) files

Prenote files are zero-dollar entries sent prior to the first live entry to notify the Receiving Depository Financial Institution (RDFI) of future payments and to test the validity of account information.

Processing window

Refers to the time period required to initiate and complete the instructions included within an ACH file. The processing window begins when ACH files are submitted to ODFIs and ends when transferred funds are posted to the receivers’ accounts.
note
The following gives an example of the processing window:
  1. Wednesday: Processor sends file to Kotapay.
  2. Thursday: Kotapay pulls funds from client's account and sends back to bank.
  3. Friday: Bank pay employees.

Receiver

The Receiver is the person or organization that has authorized the Originator to initiate an ACH entry (for example, a direct deposit transaction) to the Receiver’s account with an RDFI.

Receiving Depository Financial Institution (RDFI)

The financial institution that receives ACH entries from the ACH Operator and posts the entries to the Receiver’s accounts.

This article applies to:

  • Product: Accounting CS Client Access
  • Subject: Direct deposit,Setup

Related content