How Can You Benefit From Using ACH Withdrawals?

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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 the meaning of ACH withdrawals, what makes them convenient, and why you might benefit from using this payment method moving forward.

 

What Is an ACH Withdrawal?

An ACH withdrawal is an electronic transfer of funds 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 the 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 initiates the transaction by requesting 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.

For example, a customer can give permission to a small business owner to retrieve funds from their account by providing their routing number, account number and other banking details to complete the transaction. 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 authorization to withdraw to the other institution responsible for fulfilling the request.

The institution then adds the ACH withdrawal request to the transaction queue, which is regularly cleared out during business days. Once the ACH withdrawal is processed, the money is routed to the receiving bank and deposited into the receiver’s account.

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 withdrawals can be used for a one-time transaction, but businesses and consumers often set up automated recurring transactions for ease of use.

It’s important to note that ACH transfers are reversible under specific operating rules set by the National Automated Clearinghouse Association, which makes them an appealing option for businesses and consumers. Payers may feel safer conducting business using ACH transfers knowing that their bank will generally allow a reversal if there’s a payment amount or account error.

 

ACH Credit vs. ACH Debit

In the direct payment category, there are two types of ACH transfers—credit and debit. The type of ACH payment depends on who initiates the transaction. For example, 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. ACH debits are also known as a “pull” payment, in which a business or individual pulls funds from the customer’s bank account.

For ACH credits, the payer initiates the transaction. ACH credits are also known as “push” payments because the customer initiates the transaction and sends funds from their account to the payee. Direct deposit payments from employers, peer-to-peer payments through an app, or payments through an online portal are a few examples of ACH credit transactions. In a direct deposit from an employer to an employee, 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:

  1. 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.
  2. 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.
  3. Request to ACH: The ODFI, the merchant’s bank, sends the request to the ACH network for processing.
  4. Processing: During the processing stage, the ACH operator handling the request will sort all received transactions and direct them to the correct RDFIs.
  5. 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 Withdrawals?

Using ACH withdrawals to complete transactions is beneficial for various reasons.

1. Convenience

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. Additionally, you won’t need to spend excessive time dealing with paper records, checks and invoices or making trips to the bank. Electronic payments mean your customers won’t have to send checks in the mail or carry their checkbooks with them to do business with you.

2. Cost

High transaction and processing fees can add up and impact your business’s cash flow. While ACH withdrawals come with a fee, they cost less than than wire transfers, paper checks and credit card transactions.

Certain factors may impact the amount of an ACH transaction or withdrawal fee, including:

  • The size of the transaction
  • The frequency of transactions per month
  • The method of account validation being used
  • The likelihood of returns

3. Efficiency

ACH payments will typically credit to an account within a few 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 going to the bank. With physical paper checks, there is always the possibility of human error. These mistakes can be costly and time-consuming to resolve. ACH payments enable reduced processing time, allowing your employees to spend more time on other priorities.

4. Security

Compared to cash and paper checks, ACH withdrawals are 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 payments provide secure, electronic processing that protects against these common attempts to forge, compromise, defraud or tamper with your funds.

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 and requires explicit authorization. With one to four days of processing, you also have the time to cancel a transaction if fraud is suspected.

5. Customer Satisfaction

ACH processing benefits businesses and consumers alike. Firstly, subscription-based models thrive with ACH payments. Businesses can avoid the high payment processing fees due to the large number of recurring transactions, while customers won’t need to be reminded to pay their monthly bills.

Secondly, processing a payment or transferring funds in any circumstance can create security concerns for customers. Because their ACH payments won’t get lost in the mail or tampered with by intermediaries, your customers will feel more secure conducting business with you. Finally, ACH payments are easier, quicker and simpler than writing and processing a paper check payment. optional automatic payments remove the hassle and friction, which can lead to improved customer relationships.

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 Withdrawals and 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.

CSG Forte supports a range of industries with our payment solution. Get started today by making an account or contact us to learn more.