NACHA File Format for ACH Payments: Definition and Guide

NACHA file format can be considered the key that unlocks Automated Clearing House (ACH) payments and is used more and more as companies transition away from check payments.

While the benefits that ACH payments bring to the vendor payment process are clear and well-documented, there is still a lot that businesses don’t know about payment protocols, like NACHA, which are the driving force behind managing electronic payments.

For accounts payable teams, the key things to understand are the role that NACHA file format plays in the accounts payable process and the best ways to facilitate payments with it.

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What is NACHA file format?

NACHA file format is a set of instructions that, when uploaded into a bank portal, successfully initiates a batch of ACH payments. NACHA file format is the protocol for structuring those instructions in a way that successfully initiates the payments. While the details of each NACHA file may vary from payment to payment, typically each line is 94 characters long and includes critical payment instructions like:

  • Account number
  • Routing number
  • File header and trailer 
  • Batch header record with service class code
  • Entry detail record

The process of actually assembling a NACHA file would be tedious, manual, and prone to human error. For this reason, many financial institutions automate the process for their customers.

In case you’re curious, this image depicts what a portion of a NACHA file looks like:

NACHA formatted file

What do accounts payable teams really need to know about NACHA File Format?

Accounts payable teams need to know that a NACHA file is the key to batch ACH payments, and NACHA file format is the protocol for setting it up. Beyond that, accounts payable teams do not need to know anything. The reason accounts payable teams do not need to know more details about the specifics of NACHA file format is a practical one:

NACHA files are very burdensome for accounts payable teams to assemble manually, and ultimately not worth the time or effort that is required.

Many financial institutions will provide you with software that automatically assembles NACHA files so you don’t need to think twice about setting up your payment batches. Popular ERPs also offer features that can generate NACHA files. These services are well worth utilizing because B2B payments are complex enough as it is.

Not only is accounts payable the most manual process left in accounting operations today, but it is also steeped with opportunity for error. Adding another point of human intervention will open up another avenue for errors to enter the vendor payment process upstream and turn your month-end close into a true nightmare.

What is the Difference Between ACH and NACHA?

ACH and NACHA are essentially the same thing. NACHA is what governs the ACH network, an electronic system that moves e-payments from one bank account to another. NACHA does this by setting forth and enforcing rules that the ACH must abide by while managing the development and administration of the entire ACH network.

How do I create a NACHA file?

Creating a NACHA file is no small task and unless you have prior coding experience, it’s recommended to leave it to the professionals. While there are a number of automated options now that make the process easier like accounting software that will generate the NACHA file for you and prevent the risk of manual error, there are also options if you wish to go the manual route:

  • Use Excel to create a NACHA file – This is a two-step process of creating an excel file with all the needed code fields filled out and then formatting the file so that it can be converted into a NACHA file. 
  • Use Quickbooks to create a NACHA file – This involves utilizing a third-party file conversion tool, uploading bank account information, and uploading invoices to be sent via email. Quickbooks is able to process payments from a variety of sources and create a NACHA file that’s automatically transferred to banks.

What are the best ways to facilitate payments requiring NACHA file format?

If your bank or ERP doesn’t already provide you with a service that automates the assembly of NACHA files, you have options to choose from. However, not all of these options are created equally.

Accounts Payable (AP) Automation Software

AP Automation software provides the most efficient way to process and pay all of your invoices, including batch ACH payments.

Rather than appending a payment solution on top of your current accounts payable process, AP Automation software streamlines your entire process by eliminating all of the most painful and time-consuming points of manual intervention. Teams that implement AP Automation can see a 60% increase in efficiency and reap the benefits of cash-back rebates and increased security.

In the payment step of the process, this software sends NACHA files directly to your bank for payment and also records the payment into your accounting system through a bi-directional sync. Remittance details are also transmitted automatically.

Payment Automation Software

Payment Automation software is a viable method for following NACHA file format to execute batch ACH payments, but not optimal if you’re looking to solve the pain associated with the end-to-end AP process.

This type of software can be thought of as a “point solution” that automates one step in the lengthy accounts payable process. Most Payment Automation software operates similarly to the payment function of AP Automation software and will consolidate all of your different payment methods (check, ACH, credit card, wire, etc.) into a single electronic file.

This consolidation ultimately saves your organization time, enabling you to ensure you are paying each vendor with the most advantageous payment method, on time, every time.  Additionally, by building simple, repeatable, and scalable controls into your supplier payment process, your risk of fraudulent activity is greatly reduced.

Final Thoughts

Having to pay invoices in a timely manner can be a challenge for organizations working with a multitude of vendors. Accounting has thankfully become more digitized over time and NACHA files have become a way to simplify and expedite the process. While creating a NACHA file is very manual and time-consuming, there are now a number of automated software offerings on the market, like MineralTree, designed to streamline the process, take out the risk of human error, and allow you to set up automated payments with ease.

To learn more about ACH payments, check out this article – B2B ACH Transfers: Everything Mid-market Businesses Need to Know.


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