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An automated clearing house (ACH) is a computer-based electronic network for processing transactions, [1] usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits .
Usually offered by the cash management division of a bank. The clearing house is an electronic system used to transfer funds between banks. Companies use this to pay others, especially employees (this is how direct deposit works). Certain companies also use it to collect funds from customers (this is generally how automatic payment plans work).
In trading, clearing is necessary because the speed of trades is much faster than the cycle time for completing the underlying transaction. It involves the management of post-trading, pre-settlement credit exposures to ensure that trades are settled in accordance with market rules, even if a buyer or seller should become insolvent prior to settlement.
Brussels head office of Euroclear, a major international financial market infrastructure. Financial market infrastructure refers to systems and entities involved in clearing, settlement, and the recording of payments, securities, derivatives, and other financial transactions. [1]
In most payment systems this netting will take place on the clearing house books between the designated settlement times with final settlement of the net positions occurring when funds are debited or credited on its reserve account at a central bank.
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The term electronic payment refers to a payment made from one bank account to another using electronic methods and forgoing the direct intervention of bank employees. Narrowly defined electronic payment refers to e-commerce —a payment for buying and selling goods or services offered through the Internet, or broadly to any type of electronic ...
In May 2005 the task force announced that an agreement had been reached to reduce clearing times for phone, Internet and standing order payments. [19] This committed the payments services industry to develop a system able to clear automated payments in no more than half a day – the so-called ELLE model – resulting in payment being received the same day if made sufficiently early.