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.
- 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 4:45 p.m. EST for transactions to be completed on the same day.
- 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.
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.
In 2021, the ACH Network was responsible for handling $72.6 trillion and performing 29.1 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 most reliable payment systems in the entire world.
Day Cycle vs. Night Cycle
While most transactions occur during the day, many also occur at night. These could result from 24-hour operations like gas stations or convenience stores, or from businesses that mainly operate after dark (e.g., nightclubs, etc.). The night cycle thus processes those ACH transfers made at night.
While the day cycle for processing ACH transfers is 8:00 a.m. to 5:00 p.m. EST, the night cycle usually runs from 10:00 p.m. to 1:30 a.m. EST.
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, 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, the deadline became 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 on the same day.
To submit files to an ACH operator, ODFI's batch process all of their transactions and sends them throughout the day to an ACH operator to have the transactions processed. Currently, there are three batch processes that financial institutions run during a day to complete all transactions.
With the extended deadline of 4:45 p.m., ODFI now includes 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.
What Is Same Day ACH Processing?
Beginning in 2017, the ACH system allowed for the clearing of batches of orders within the same day. With same-day processing, credit and debit card transactions can be processed several times throughout a business day.
What Is the Cut-Off Time for Same Day ACH?
Batches must be sent no later than 4:45 p.m. EST in order to be processed same-day.
What Are ACH Settlement Times?
ACH settlement times are the target times within which a batch of transactions will be processed and settled. For example, transactions processed by the 10:30 a.m. cutoff would be settled now later than 1:00 p.m., and those by the 2:45 p.m. cutoff by 5:00 p.m.