How Can You Benefit From Using ACH Withdrawals?
ACH withdrawals are a modern payment method that can be useful to both businesses and consumers. This approach to transferring funds offers benefits over other payment methods like checks and credit cards, and it’s supported by most major banks. Explore what makes ACH withdrawals convenient and why you might benefit from using this payment method moving forward.
What Is an ACH Withdrawal?
An ACH withdrawal transfers funds electronically through the Automated Clearing House (ACH) network. The ACH network acts as an intermediary between two financial institutions involved in the transaction. There are two parties that participate in ACH withdrawals—the Originating Depository Financial Institute (ODFI) and Receiving Depository Financial Institute (RDFI).
In any type of ACH transaction, the ODFI is the account that initiates the transaction. In the case of an ACH withdrawal, the ODFI requests funds from the RDFI. For example, a gym might request a monthly ACH withdrawal from every member to cover their membership fees.
How Does an ACH Withdrawal Work?
An ACH withdrawal starts with approval from two financial institutions to permit the exchange of funds. The two financial institutions can be two different banks, as long as they both support ACH transfers.
The ACH network then acts as the overseeing body for the transfer. One financial institution and account owner request a withdrawal, and the ACH network communicates the withdrawal to the other institution responsible for fulfilling the request. With the ACH network acting as a neutral third party in the exchange, all information stays secure and the financial request gets handled fairly.
ACH Credit vs. ACH Debit
ACH payments generally fall into two categories—credit and debit. ACH withdrawals are ACH debits because the process is initiated by the payee. The payee sends the request to the ACH network, and the RDFI responds to the transaction by sending the amount owed.
For ACH credits, the payer initiates the transaction. Direct deposit payments from employers are an example. The transaction is initiated with a payment from the employer, rather than a request for funds initiating the transaction. ACH credits may also occur with tax refunds and government benefits.
ACH Withdrawal Between Businesses and Customers
The ACH withdrawal process is straightforward and involves a few key steps between a business and a customer:
- Request and initiation: A customer requests a product or service from a business and elects to pay by ACH transfer. In doing so, they authorize the transfer by providing their account and routing number for the transaction. This information will either go to the merchant directly or to the merchant’s third-party payment processor.
- Request to bank: After the customer has authorized the transaction, the merchant or payment processor sends the withdrawal request to the merchant’s financial institution with the customer’s account information.
- Request to ACH: The ODFI, the merchant’s bank, sends the request to the ACH network for processing.
- Processing: During the processing stage, the ACH operator handling the request will sort all received transactions and direct them to the correct RDFIs.
- Completion: The RDFI receives the request for the withdrawal and sends the amount to the ODFI. The withdrawal process is complete.
What Are the Advantages of ACH Withdrawal?
Using ACH withdrawals to complete transactions is beneficial for various reasons.
Initiating the ACH withdrawal process is easy to do and comes with minimal administrative responsibilities. While paper checks come with constant cashing and tracking, ACH withdrawals are completely electronic. ACH payments are particularly convenient for subscription services and bills that need to be paid every month. Rather than receiving thousands of checks a month, you can manage all of your incoming payments directly with your bank account.
While ACH withdrawals can come with a small fee, they’re still much lower than wire transfers and credit card transaction fees. You can learn more about ACH fees by talking with your bank or financial institution. Some institutions may not charge a fee, especially for bill payments.
ACH payments will typically credit to an account within one to three business days, so you can have access to your new funds quickly. Once you initiate a transaction, the money is on track to your account—no need to handle additional steps like making a trip to the bank.
Compared to cash and paper checks, ACH withdrawals are far more secure. Checks can get lost in the mail and clearly display account and routing numbers that any person can intercept. Cash can also be easily stolen and can be difficult to recover.
ACH withdrawals are overseen by the ACH network to ensure the safety of fund transfers. While the involved financial institutions do have to provide account information to complete the exchange, this information is only exchanged once. With one to three days of processing, you also have the time to cancel a transaction if fraud is suspected.
Banking Details Required for an ACH Withdrawal
When completing an ACH transaction, you’ll need the following information:
- The sender’s name
- Name of the financial institution
- Account type
- Routing number
- Account number
How CSG Forte Can Help You With ACH Payments
CSG Forte’s Dex is a payments platform that makes it easy to conduct ACH withdrawals for your business. Manage all fund transfers in a single location, and access user-friendly reports that detail all payment activity. Reduce administrative strain on your team and provide convenient payment options online, in-person and on the phone.