What Is an ACH Withdrawal? How Do ACH Withdrawals Work?

ACH withdrawals use the ACH network to electronically transfer money from one financial institution to another.

There are many ways to settle a debt. If you drive your uncle to the airport, for example, he might buy you a sandwich in return—or he might instruct you to go into his fridge and help yourself to a specified number of sandwiches. You make the sandwich withdrawal yourself, but only because the sandwich owner has authorized the transfer (and told you where to find the goods).

In an Automated Clearing House (ACH) withdrawal, the party owed money pulls funding from the paying party’s account, which has authorized the transfer of funds—just like you might debit your uncle’s sandwich cache in return for bringing him to the airport. ACH withdrawals are an efficient, cost-effective, and secure method of transferring funds. Businesses use them to accept payments from customers and to manage recurring payments to vendors.

What is an Automated Clearing House (ACH) withdrawal?

An ACH withdrawal is a a type of electronic bank transaction where funds are transferred from one account to another via the Automated Clearing House network. ACH is commonly used for direct deposits, bill payments, and other financial transactions between banks in the U.S.

In any ACH transaction, the initiating party’s financial institution is known as the originating depository financial institution (ODFI), and the other party’s financial institution is known as the receiving depository financial institution (RDFI). Note that the RDFI is the institution that receives the transaction request, not necessarily the institution that receives the funds: in an ACH withdrawal, the ODFI requests and pulls money from an RDFI account into an ODFI account, which results in a debit from the RDFI account and a credit to the ODFI account.

In order to initiate an ACH withdrawal, an individual or merchant will need access to their own banking information (including routing number and account number), the paying party’s account number and routing number, a record of payment terms, authorization to make the withdrawal, and access to a financial institution or ACH provider. 

How does an ACH withdrawal work?

1. An ACH withdrawal is requested and initiated. 
2. The request is sent to the bank. 
3. The request is sent to the ACH. 
4. The ACH processes the withdrawal request.
5. The withdrawal is made. 

Here’s an overview of an ACH withdrawal transaction between a business and a customer.

1. An ACH withdrawal is requested and initiated. A customer purchases a good or service and elects to pay by ACH transfer, submitting their routing number and account number either directly to the merchant or the merchant’s third-party payment processor.
2. The request is sent to the bank. The merchant or third-party payment processor sends an ACH withdrawal request to the merchant’s financial institution along with the customer’s banking information.
3. The request is sent to the ACH. The merchant’s bank (the ODFI) batches the transaction along with other ACH transfers. These batched transactions are sent out at regular intervals during the business day.
4. The ACH processes the withdrawal. An ACH operator receives the batched transactions, sorts them, and submits the transactions to the customer’s bank (the RDFI).
5. The withdrawal is made. The RDFI processes the transaction and credits the payment amount to the merchant’s account at the ODFI.

ACH withdrawals versus ACH credits

All ACH transactions are classified as either debit transactions or credit transactions. ACH withdrawals (also known as ACH debit transactions) transfer money from an account at the receiving depository financial institution (RDFI) into an account at the originating depository financial institution (ODFI). ACH withdrawals include automated payments, such as recurring bill payments and customer payments for goods or services.

ACH credit transactions (also known as ACH deposits) transfer money from an account at the ODFI to an account at the RDFI. These include payroll direct deposit, government benefits, and tax refunds. Both transaction types use the ACH network as an intermediary between financial institutions. 

Advantages of ACH withdrawals

ACH withdrawals are a secure and cost-effective way to accept payment from customers, with fees typically lower than other forms of payment (such as credit cards). They also require less labor to process than paper checks, reducing your administrative burden and freeing you up to focus on developing and growing your business.

Cost

ACH withdrawal fees are typically lower than credit card transaction fees and wire transfer fees. Contact your financial institution (or third-party payment processor) to find out how much it charges for ACH withdrawals. Many businesses also use ACH withdrawal for bill payments, which are typically free of charge.

Security 

ACH payments offer security advantages over both paper checks and cash. Checks can go missing in the mail and, because they contain your routing and account number, are a liability if intercepted. Large amounts of cash also present a heightened risk because they can easily be lost or stolen, meaning transporting cash requires advanced security messages to deter theft. ACH withdrawals also provide security advantages over wire transfers, as their one-to-three-day processing time provides a buffer during which businesses can stop payment if fraud is suspected or an error is identified. 

Convenience

Many businesses use ACH withdrawals to set up recurring payments for utilities or other ongoing operating expenses, reducing their administrative burden and ensuring bills are paid on time. You can also use ACH withdrawals to accept payments from customers, which is faster and more efficient than receiving and depositing paper checks.

ACH withdrawals FAQ

What is an ACH payment?

An ACH payment is a method of transferring funds from one bank account to another that relies on the Automated Clearing House network—an electronic system for moving money without using paper checks or cash.

How long does an ACH withdrawal take?

ACH withdrawals typically take one to three business days to process, but some financial institutions offer same-day ACH transfers for an additional fee.

Are ACH payments safe?

Yes, ACH payments are a safe way to transfer money and maintain the confidentiality of your banking information.

What do you need for an ACH payment?

Submitting an ACH payment requires you or your third-party payment provider to collect the following information from a customer: Bank account number Routing number Whether the account is a savings account or a checking account Authorization to debit the payment amount Acknowledgment of payment terms