The settlement process and the related billing, auditing and adjustment procedures have been developed and refined by airline revenue accounting specialists and are documented in the Airlines Clearing House Manual of Procedure.
Four types of transaction billings are eligible for settlement through ACH:
1. Passenger: Arising when one airline honors a passenger interline traffic document issued by another airline.
2. Airfreight: Arising when one airline transports a shipment arranged through another airline.
3. Universal Air Travel Plan: An airline industry charge program under which participating airlines issue UATP cards that cardholders may use to pay for tickets and other travel services.
4. Non-transportation: Arising from a wide range of contractual arrangements (e.g., ground handling, maintenance, fuel, partner/alliance charges and catering).
Each participant is required to maintain a demand deposit account with the “Clearing Bank” for the purpose of effecting the periodic net settlements.
Participants may submit claims in USD or CAD and elect to be paid and/or remit funds in USD or CAD.
An annual calendar is published detailing the deadline dates and times for the activities leading up to the periodic settlements.
Up to four times each month, ACH participants may submit summarized billing amounts against other participants for each of the aforementioned types of billings. Subsequently, settlement reports are generated displaying the amounts the participant has billed to others, the amounts others have billed to the participant, and the participant’s net settlement position. Each participant that is a net debtor is required to make funds available for the ensuing settlement. Each participant that is a net creditor is entitled to receive funds through the Clearing Bank.
Once every month, invoices and supporting documentation for the month’s billing are submitted directly by the billing participant to the billed participants.
Participants settle billings through ACH on a provisional basis, prior to auditing the related invoices. If subsequent auditing indicates that a previously settled billing was inappropriate, the billed participant may, within specified time periods, submit an adjustment billing for inclusion in a subsequent settlement. The adjustment process is designed to encourage participants to resolve billing disputes consensually. Disputes that participants are not otherwise able to resolve are subject to binding arbitration through the ACH Committee on Differences.
The ACH settlement process embodies four key principles:
Reciprocity and Mutuality. In exchange for the privilege of billing and collecting from other participants on an expedited basis, each ACH participant agrees that it must honor other participants' billings on the same basis. No participant is permitted to bill and collect from other participants without honoring the corresponding billings submitted against it by other participants.
Net Settlement. Participants settle with one another on a net basis only. If, for a particular clearance period, airline A has billed airline B a total of $1 million and airline B has billed airline A a total of $1.5 million, A is only required to pay (and B is only entitled to collect) the $500,000 net amount. B cannot disregard A’s recoupment/setoff rights and collect the full $1.5 million it has billed against A; nor can A require B to pay A’s $1 million billing and disregard B’s $1.5 million billing against A.
Provisional Settlement. Participants bill and collect from one another on the basis of unaudited, and in some cases, estimated invoices, recognizing that settlements are provisional and that settled billings remain open to adjustment once the billed participants have had the opportunity to review and audit the billings and to adjust applicable estimates. In effect, participants settle their mutual obligations through ACH on a “bill and collect now/audit and adjust later” basis.
Non-Judicial Resolution of Billing Disputes. When participants disagree about the appropriateness of billings settled through ACH they are required to seek to resolve their disagreements consensually, first by submitting adjustment billings, second through a formal “correspondence process,” then through mediation under the auspices of ACH and, finally, through binding arbitration. The availability of these non-judicial dispute resolution procedures and the resulting incentives for compromise are a key feature of the settlement process. Participants cannot be expected to pay unaudited (and in some cases estimated) billings if they can be forced to resort to litigation in order to recover overcharges.
