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Payment File Processing—What Are In NACHA Files?

nacha files

NACHA files provide a convenient method for batch payment execution. All methods of electronic remittance have their own rules, standards, and regulations.

What if you could eradicate all the tedious remittance processes and pay all of your vendors with a single touch?

With new and innovative systems eliminating traditional remittance processes, and technology enabling smarter, faster, and more secure payments, this is exactly what mass payment does. Instead of manually entering the ACH payments in your bank's interface, you can generate a standard NACHA file that can be uploaded to your ACH Provider, allowing businesses to create a single digital file that automatically goes where each vendor needs it to go.

When a business wants to pay all of its suppliers at the same time, it needs to be done through a batch payment system, through a portal, or API. First, you must create and upload a payment file so the bank can direct payments to the right recipients. These digital files can vary between long lengths of code and specific formatting and largely depend on whether a business is using an ACH API, mass payment platform, bank portal, or a digital payment solution.

In this article, we will unpack the NACHA file format for the National Automated Clearing House Association or (NACHA)—a central hub that facilitates the exchange of payments by banks, financial institutions, and businesses in the US, and how they are used to execute domestic Automated Clearing House (ACH) payments securely.

What Are NACHA Files?

NACHA files are a common type of payment file and one of the fastest and safest ways for a business to pay vendors without using checks or a credit card. These payments are made through ACH, the network that NACHA has developed for use by all the players in the payments industry.

NACHA files are electronic files with ASCII text lines, similar in a way to the words you are reading now, but different in that each byte in the file contains one character that conforms to the standard ASCII code. This specific formatting allows the electronic file to be read properly and securely to trigger a batch of ACH payments when uploaded to an ACH portal.

Each line is 94 characters long and serves as a record to execute domestic ACH payments, and while the details of the file format can vary between various financial institutions or banks, there are a number of Standard Entry Class Codes (SEC codes) that relate to ACH payment files.

The files themselves are formatted in a digital envelope and contains important payment instructions, such as:

File Header

Basic information about NACHA files: Who the payer is, which bank is handling the transaction.

Batch Header

Specific information about the payment: Standard entry class, description of payments, and effective date.

Detailed Transaction Record

Payment details, information about the payee (banking information), and the amount to be paid.

Batch Control Total

Total included in each batch.

File Control Record

Final check on the payment batch. It includes counts for each type of entry.


An optional record that sometimes accompanies NACHA files, mainly for corporate-to-corporate transactions.

What Are the Rules for NACHA Files?

The ACH network processed 7.3 billion payments worth a staggering $18.4 trillion in the second quarter of 2021, and when one participant doesn't comply with the rules, it compromises everyone. It's essential that everyone using the network—consumers, businesses, credit unions, banks of all sizes, and government entities—have well-defined roles and responsibilities for every ACH transfer. If someone doesn't comply, everyone along the chain is at risk.

Security is paramount and NACHA rules govern every ACH payment, rigorously enforcing these regulations through a system of warnings and fines. If a violation is not corrected accurately and timeously, it can result in censures and potentially crippling fines until the issue is resolved. Persistent rulebreakers may even face suspension.

A rules enforcement proceeding may be triggered when an ACH rule violation is filed against a participating financial institution by another entity; one of the two ACH Operators; or by NACHA itself. If an issue is left unresolved, warnings can turn into huge penalties.

Participants who do not resolve their rule violation within a year period or have a recurrence of the same violation could face a Class 1 Rule Violation with up to a $1,000 fine. If it happens again, the penalty could be raised to $2,500. A third violation will result in a fine of up to $5,000.

NACHA’s enforcement rule became effective on January 1, 2021, and the Reversals rule became effective on June 30, 2021.

If an issue is considered serious enough to qualify as a Class 2 Violation, the ACH Rules Enforcement Panel–comprising industry representatives–may impose a penalty of up to $100,000 per month until the issue is resolved. If a Class 2 Rule Violation remains unresolved for three consecutive months, the fine can be raised to $500,000 per month until resolved.

For Class 3 violations, NACHA has the authority to report it to the ACH Operators, federal and state banking officials, consumer protection authorities, and other appropriate regulators and agencies. A suspension can only be lifted by the ACH Rules Enforcement Panel or by an Appeals Panel comprising at least three individuals selected by NACHA from a list of arbitrators.

Updated NACHA Rules are released every year and new rules can sometimes be missed. It’s thus critical that everyone in the ACH payment chain keep up with the rule and industry changes and ensure strict adherence to these amendments.

Why Use NACHA Files?

The ACH Network is the backbone of the US financial system. Which enables billions of electronic financial transactions including:

  • Direct deposits
  • Social Security and government benefits statements
  • Electronic bill payments
  • Person-to-person (P2P)
  • business-to-business (B2B) payments

Additionally, the military was one of the first entities to tap into the ACH Network to pay salaries via Direct Deposit.

Many consumers, while perhaps unaware of ACH, are familiar with electronic bank transfers, electronic funds transfers, and similar terms using it to pay mortgages, college tuition, and to receive their salaries or tax refunds. Similarly, businesses use the ACH Network to pay bills and employees.

ACH is the primary vehicle for B2B and mass payments because of the fast delivery, low fees, and overall reliability. The ACH network is cheaper than other methods because payments are processed in batches, rather than individually and because the process is automated, a business need not worry about making or receiving payment on time each month. Money can be instantly drawn or sent with the appropriate timings in place.

NACHA has pioneered many innovations in the financial industry and been instrumental in the development and standardization of such innovations as direct payroll deposit, electronic benefits deposit, and automated credit card transactions. In 2019, Nacha unveiled the Faster Payments Playbook, an online platform that aims to help banks and credit unions develop a faster payments strategy.

NACHA files provide a detailed format and set of instructions to make sure ACH payments, whether once-off or recurring, are executed securely and on time.

How to Create NACHA Files

NACHA files are difficult to code due to the way they are formatted.

To attempt to make life easier, some bank portals have automated parts of the NACHA process that simplify the formatting. In some cases, accounting software will generate the NACHA formatted file for you. NACHA files, though, can be created using different methods, depending on the accounting system you are using. As an example, Premier ACH is software that many banks use to convert a NACHA file from an Excel file. It enables a dedicated treasury expert to enter all the data required for an ACH transaction and creates a formatted NACHA file. An Excel file can be exported from common accounting programs like QuickBooks or Sage.

The steps to format Excel files into NACHA files are as follows:

  1. Identify objects and relationships
  2. Create class modules
  3. Write code to fill classes
  4. Write code to create an XML file
  5. Augment class modules until it compiles

To better understand coding custom NACHA files from Excel, check out this in-depth tutorial.

The Pains of Creating Your Own NACHA Files

Third-party payment processors that work without the need for extra software, specialized tools, or dedicated internal teams enable a business to hand off the creation of NACHA formatted files and execute payments through a clean upload from your accounting systems to your payment processor—skipping the expensive requirements and shifting standards.

In 2016, for example, NACHA announced its preferred partner program for creating ACH files. It specifically mentioned Treasury Software as the best tool for converting files into the NACHA format. NACHA said it chose Treasury Software because its ACH Universal platform is installed at the client's location, “enabling full integration and automation with popular packages such as QuickBooks, Excel, and Microsoft SQL Server.”

If all this—regulations, compliance with clearing house rules, unusual file formats, and compiled modules—sounds a little complicated to you, you’re not alone. Businesses are spending cumulative billions on complicated remittances and losing time and money in the process when trying to tackle the world of payment execution on their own.

NatPay—Simply a Better Way To Pay

If you’re still using outdated remittance processes and paying your vendors with checks (or even formatting and building NACHA files yourself for batching through your bank)—it’s time to switch over to ACH payments and pay all of your vendors at one time and on time with a dedicated third-party processor.

Employees can get their salary, wages, and reimbursements directly into their bank accounts, even when working remotely. Consumers are able to pay utilities, insurance, cable and internet, mortgages, car loans, credit cards, and more online using ACH Payments. All this is possible with a single NACHA file.

So whether for consumers, businesses, or government agencies, NatPay processes all types of transfers with the highest level of ACH payment security. When it comes to payments, we know there’s no one-size-fits-all solution. That’s why NatPay offers a variety of customized ACH payment solutions for B2B and P2P transactions, with our team working with you every step of the way.

You can count on NatPay to handle everything from remittance reports and data integrity checks to end-of-day processing in full compliance with NACHA guidelines, ensuring all along the payment chain are protected. You save time by handling all transfers at once instead of going through multiple steps.

Contact NatPay today for a free demonstration of our ACH and online document distribution solutions.

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