Originator | B2B Finance Glossary

What Is an Originator?

In the ACH payment process, the individual, business, or party that creates the ACH transaction is known as the originator. For example, your business is an originator if it offers online payments and eChecks as a payment option.

Originators can use a Third Party Processor (TPP) to process payments on their behalf or submit transactions directly to an Originating Depository Financial Institution (ODFI) to maintain compliance and uphold standards required for ACH transactions instituted by NACHA. An ODFI is a financial institution that operates as the interface between the ACH network or Federal Reserve and the transaction’s originator. This bank must verify the receiver’s authorization of the ACH payment, and the originator must keep a copy of the receiver’s license on file for two years.

What Is a Receiver?

A receiver is the individual, company, or party issuing a payment through the ACH system. It is known as the receiver because its bank is on the receiving end of the debit instructions. In other words, the receiver is the originator’s customer. The receiver authorizes the originator to initiate a credit or debit entry (another name for a payment or payment request) to a transaction account held at a Receiving Depository Financial Institution (RDFI). This financial institution receives entries directly or indirectly from its ACH operator. ACH operators are central clearing facilities such as the Federal Reserve or the Electronic Payments Network (EPN), through which financial institutions transmit or receive ACH entries and move the money between ODFIs and RDFIs.

If the receiver of the ACH transaction does not authorize the charge, the funds will not be removed from their account. However, if the bank does take money out of the receiver’s account without the receiver’s authorization, then the receiver has 90 days to dispute the transaction.

What Are the Responsibilities of an Originator?

Originators are responsible for many different elements in the ACH process. Here’s what they entail:

1. The originator must obtain proper authorizations and retain them for at least two years.
2. Originators must provide a copy of the authorization if it is ever requested by the bank or as part of an annual audit.
3. Originators must send entries on the proper date.
4. Originators must give the receiver proper notice if the originator changes the amount or date.
5. Originators must cease subsequent entries when notified.
6. Originators must make necessary changes to payee account information within three banking days if they receive a Notification of Correction or before another entry is sent.
7. When creating an ACH file, the originator is in charge of entering the proper company name for the receiver of the entry.
8. Originators must check payees against OFAC compliance checklists.
9. Originators protect the banking information received in the originating transaction process.
10. Finally, originators must also ensure that their computer is protected according to the standards outlined by the Provident Bank Agreement.

What Are the Benefits of Using ACH Payments for Enterprise Originators?

ACH payments offer many benefits to enterprise originators. These include the following:

• A much more cost-effective solution than wire transfers.
• Improved cash management forecasting.
• A trustworthy and streamlined payment method.
• A reduction in administrative and operating expenses.
• Time saved that might otherwise be spent on labor-intensive manual processes.
• An acceleration in the availability of funds.
• An empowering experience for businesses and consumers that allows them to control better when bills and invoices are paid.

What Are the Forms of Authorization Required for ACH Transactions?

Many different forms of authorization are accepted for ACH origination.

Verbal authorization of an ACH origination is acceptable, but only if it is recorded. Depending on which state the transaction is made in, the originator might be required to notify all parties participating in the conversation that they are being recorded; other states allow recording to occur with only one party’s consent.

Online authorization is accepted if the receiver is presented with a list of terms and conditions and must check an agreement box before the transaction is completed.

On the other hand, written authorization is the most secure form, but it can take time to quickly get the required written signatures. For written authorization to be approved, the document must include the transaction date, the dollar amount of the intended payment, and the receiver’s signature. The signature itself does not need to be notarized.