ACH/Check21 Primer

Best of both worlds

There are two main protocols for bank to bank transfers. Since both protocols involve the exchange of money but require different rules they are typically managed as two separate systems within the bank. Accordingly, ACH deposits are split from Check21 deposits and will appear as separate entries on a bank statement.

The ACHeck21® API is configured to allow us to manage both as a single workflow even though the rules and file formats differ.


ACH is an acronym for the “Automatic Clearing Housing”. ACH provides a standard file format that allows banks to exchange payment information through an exchange or the US Federal Reserve. The rules for exchanging files and the file format are published and maintained by the National Automated Clearing House Association (NACHA), thus providing a common foundation for the exchange of all files. The system operates on the basis of trust backed up by “inspect what you expect”. Accordingly, depending on the information comprising a file and a determination of how the file is “originated” it falls under different classifications and different sections of the rules. The classifications are referred to as Standard Entry Classification or SEC. If a transaction does not fall within the rules it is not allowed and will be rejected. Some types of bank accounts are also excluded.

The ACH network in its most basic form is a person or entity that first sends a file (the “Originator”) and a person or entity that receives the file (the “Receiver”).

An Originator– whether that’s an individual, a corporation or another entity– initiates either a Direct Deposit or Direct Payment transaction using the ACH Network. ACH transactions can be either debit or credit payments and commonly include Direct Deposit of payroll, government and Social Security benefits, mortgage and bill payments, online banking payments, person-to-person (P2P) and business-to-business (B2B) payments, to name a few.

Instead of using paper checks, ACH entries are entered and transmitted electronically, making transactions quicker, safer and easier.

The Originating Depository Financial institution (ODFI) enters the ACH entry at the request of the Originator. The Federal Reserve or The Clearing House) receive batches of ACH entries from the ODFI and forwards these to the Receiving Depository Financial Institution (RDFI).

The Receiver’s account is debited or credited by the RDFI, according to the type of ACH entry. Individuals, businesses and other entities can all be Receivers.
Each ACH credit transaction settles in one to two business days, and each debit transaction settles in just one business day, as per the Rules.

Check21 (aka – x9.37, x9.100- 180 or Image Cash Letter)

Check21 refers to a law passed by congress and effective in 2004 that allows banks to electronically exchange checks using images of the checks (Check Clearing Act of the 21st Century). Since this is a federal law the rules are set under the rule making authority of the Federal Reserve and have the force of law.

The Check21 method allows any paper instrument(except cash) that would be eligible to deposit at a bank teller window, to be deposited or cleared using the rules and law governing Check21. Accordingly, many items excluded by ACH are allowed under Check21.

Unlike ACH, Check21 cannot be used to originate a payment but is designed to expedite the deposit and clearing to checks thus removing the paper check from the banking system. Note: there are virtual check books that can and do originate payments that are settled using the Check21 system. One underlying requirement of Check21 is that an image of the Check is part of the file. The quality of the image is defined by the Federal Reserve and check images that do not pass Image Quality Analysis (IQA) are rejected or returned.

The Check21 file is sent to a Bank of First Deposit (BOFD) to clear through the Federal Reserve to the Issuing Bank. The Issuing Bank accepts the file and may look at the check images to verify signatures, balances and account status. Returns are classified as to the return reason and sent back through the system although the images are omitted.

Check21 settles in two business days although under current rules the Bank of First Deposit may give same day ledger balance credit.