What Is a Day Cycle?

A day cycle is the time period allotted for the delivery of Automated Clearing House (ACH) debits and credits from an originator to its processor. It is intended to allow financial institutions to settle transactions within the same day.

The day cycle is also sometimes referred to as the daytime window. For the ACH to handle transactions in a day cycle, financial institutions must submit an ACH file to an ACH operator by 2:45 p.m. Eastern Standard Time (EST). This will change to 4:45 p.m. EST beginning March 19, 2021.

Key Takeaways

  • The day cycle is the time period allotted for the delivery of Automated Clearing House (ACH) debits and credits from an originator to its processor.
  • The day cycle stipulates the times that transactions can be completed in one day without having to be handled overnight.
  • Currently, originating depository financial institutions (ODFIs) have to submit their ACH files to an ACH operator by 2:45 p.m. EST for transactions to be completed on the same day.
  • Beginning March 19, 2021, ODFIs will have till 4:45 p.m. to submit their ACH files for same-day transactions.
  • The ACH is the primary electronic payment system in the U.S. that handles transactions of funds.
  • Common transactions handled by the ACH include direct deposit, tax refunds, and consumer bills.

Understanding a Day Cycle

The Automated Clearing House (ACH) is known as the ACH Network and it operates as the center of commerce in the United States by transferring money and information from bank accounts using direct deposit and direct payment.

ACH transactions include credit and debit transactions, recurring and one-time payments, government, consumer, and business-to-business transactions, international payments, and payment information.

Specific transactions include direct deposit, tax refunds, tax payments, a variety of consumer bills, and all electronic funds transactions of a similar nature.

In 2019, the ACH Network was responsible for handling $55.8 trillion and performing 24.7 billion electronic financial transactions. The large number of transactions that the ACH Network makes has led to it being considered one of the safest and reliable payment systems in the entire world.

A day cycle is beneficial because the implementation of deadlines for receipt of electronic files from the originator helps ensure that the processor will be able to process all transactions in a prompt and efficient manner.

The opposite of the day cycle is the night cycle, which the ACH instituted in 1979 to allow for credit and debit transfers to be completed during the hours of 10:00 p.m. and 1:30 a.m. Eastern Standard Time. Many corporations find the night cycle to be helpful to move funds into concentration accounts so the funds are able to be settled and used the following day.

Operating Parameters of a Day Cycle

As an example of how the day cycle works, an originator must first initiate the financial transaction, either a direct deposit or a payment transaction into the ACH Network.

The payment request is entered and transmitted electronically via the originating depository financial institution (ODFI). If the request is made in the morning hours, it will be on the day cycle. The closer to the morning hours the request is made, the more likely it is to be completed on the same day.

ODFI's currently have a deadline for submitting same-day receipts to the ACH operator by 2:45 p.m EST, meaning that a customer who needs a transaction done the same day, should complete their transaction with their financial institution well before this time.

Beginning March 19, 2021, given new updates, the deadline will be 4:45 p.m, with the target distribution time at 5:30 p.m. EST and settlement at 6 p.m. EST. This allows customers as well as financial institutions more time to have transactions completed the same day.

Batch Processing for a Day Cycle

To submit files to an ACH operator, ODFI's batch process all of their transactions and send them throughout the day to an ACH operator to have the transactions processed. Currently, there are two batch processes that financial institutions run during a day to complete all transactions.

With the extended deadline of 4:45 p.m., ODFI's will have to include a third batch process during the day. This is not a problem for larger financial institutions, however, it is expected that small banks will struggle with trying to fit in an additional batch, as it will require more processing power and more employees to do so.