There are numerous different types of payment systems, such as credit cards, checks, wire transfers, bank drafts, point of sale machines, as well as many others. The World Wide Web offers the following definition for what a payment system is: “The generally accepted method of payment for trade in an economy.”

Consumers worldwide use payment systems everyday when conducting daily activities such as shopping and paying bills. If you use an ATM card, or a credit card to pay for goods and services, or to pay your bills, it is important to understand what an ACH is all about.

ACH, which stands for “automated clearing house”, is actually an electronic banking network that operates only in the United States. This network processes huge amounts of electronic payments, such as debit and credit card transactions. The automated clearing house also processes payments to individuals such as the direct deposit of their paychecks, direct deposit of tax refunds, as well as other government benefit checks.

Consumers use this particular payment system to execute payments for their mortgages, car insurance, health insurance, utility bills, and many other bills that are paid on a regular basis. Consumers also utilize POS machines when shopping for groceries and other goods at retail stores. A POS machine, also known as a “point of sale” terminal, allows the consumer to make an automated payment using their debit or credit card. This payment is then processed through the ACH. This method of electronic payment processing makes it convenient for consumers; especially those who do not like to carry a large sum of cash with them.

The ACH payment system uses what has been termed the “Standard Entry Class Code.” This system of coding assigns a certain three-digit code to each payment, so the ACH system will be able to recognize what type of payment it is. There are currently codes in use for the following types of payments; accounts receivable entries, corporate cash disbursements, death notification entries, point of purchase, prearranged payments and deposits, represented check entries, telephone initiated entries, web initiated entries, and destroyed check entries.

With so many payments being processed by the ACH payment system, it would be impossible for one entity to handle all of them. For this reason, payments are processed by certain companies depending upon what region of the United States the payment originated in. While some companies processing payments for the ACH payment system do so for numerous stares, there are some that handle payments for only a single state.

As you go through your daily activities, make a note of every time you happen to use your credit or debit card, or even write a check. You may not realize it, but every time you use one of these methods to pay for something, some sort of payment system is processing your payment.