ACH withdrawals: What it is, how it works, pros and cons

What is an ACH withdrawal?

An ACH withdrawal is an electronic transfer of funds between two bank accounts over the ACH network. This network acts as a middleman, securely moving money from one financial institution to another without needing paper checks or cash.

ACH withdrawals are a type of ACH transfer where a business or service provider is authorized to “pull” funds directly from a bank account. Like ACH credits, ACH withdrawals let businesses automate incoming and outgoing payments efficiently.

Once set up, ACH withdrawals happen automatically, covering bills, mortgage payments, or transfers between accounts, streamlining recurring transactions.

How do ACH withdrawals work?

Here's a step-by-step look at how ACH withdrawals work:

1. Authorization and account information: First, the account holder authorizes the business. This involves sharing bank details like routing and account numbers, often as part of setting up a recurring payment or subscription.
2. Initiating the request: With authorization, the business sends an ACH withdrawal request to their bank. This request includes transaction details like the amount and the payer’s bank information.
3. Batch processing: The business’s bank, or Originating Depository Financial Institution (ODFI), groups the ACH withdrawal request with other transactions and processes them in batches
4. Routing via ACH network: An ACH operator (e.g., the Federal Reserve or the clearing house) sorts and routes the batch to the payer’s bank or Receiving Depository Financial Institution (RDFI)
5. Verification and withdrawal: The RDFI checks the account for sufficient funds. Once the ACH transfer is approved, the funds are sent to the recipient’s account, where they appear as ACH deposits within 1–3 business days.
6. Completion and notification: Both the payer and the recipient are notified of the completed transaction, typically through bank statement updates or alerts

The process is automated, secure, and standardized, making it a popular choice for businesses and consumers.

Pros and cons of ACH withdrawals

Now that we’ve explored how ACH withdrawals work, let’s look at the advantages and drawbacks of using this payment method. Like any financial tool, ACH withdrawals have strengths and limitations, making them great for some transactions and less so for others.

Pros of ACH withdrawals

• Convenience: Since ACH debit transactions are automatic, they help businesses maintain cash flow without relying on manual entries, reducing errors and improving efficiency. ACH automates recurring transactions, allowing for timely payments.
• Cost-effectiveness: ACH withdrawals often have lower fees than credit cards, ePayables, or wire transfers, saving businesses money, especially on large volumes. In fact, due to its affordability and efficiency, The Clearing House reports that ACH volume in the US grew by 4.8% in 2023.
• Security: ACH transactions are processed through secure networks with strict regulations. They’re less susceptible to theft than cash or checks, and in specific cases, ACH payments can be reversed, adding a layer of protection against fraud.
• Reduced administrative effort: Unlike credit cards, which often expire and require updating, bank account numbers remain stable. This stability minimizes administrative overhead in managing payment information.
• Environmentally friendly: ACH withdrawals are digital, reducing paper usage and supporting eco-friendly financial management

Cons of ACH withdrawals

• Processing times: ACH withdrawals generally take 2–3 business days. While same-day ACH is available, it usually carries an additional fee and may have transaction limits.
• Domestic-only usage: ACH is available only for US bank accounts, making it unsuitable for international transfer
• Transaction limits: ACH limits vary by bank, which may restrict the amount or frequency of withdrawals
• Delayed confirmation: ACH doesn’t provide immediate confirmation, unlike wire transfers, which can complicate cash flow management for businesses needing quick fund access

How to set up and manage ACH withdrawals

Automated payments through ACH make managing recurring expenses and invoicing easier, but the process may vary depending on your ACH provider. Here’s a step-by-step breakdown of how to initiate ACH withdrawals:

1. Obtain customer authorization: To authorize the ACH withdrawal, obtain signed or digital consent from the customer. This step may involve a physical signature, an online consent checkbox, or a secure PIN or password.
2. Provide and verify bank details: The customer provides bank account and routing numbers. Some ACH providers verify these details through small test deposits to prevent errors.
3. Submit the ACH withdrawal request: Once verified, submit the withdrawal request to the ACH provider, specifying the amount, date, and frequency if it’s recurring
4. Batch processing and routing: The ACH provider batches the transaction and sends it to the ACH operator for routing to the customer’s bank
5. Receive confirmation and funds: The receiving bank processes the transfer, and funds are routed to your account within 1–3 business days

Accepting ACH withdrawals

To accept ACH withdrawals, partner with an ACH provider like a bank or payment processor. Many providers offer online tools or accounting software integrations to manage ACH withdrawals efficiently. Always ensure customers authorize payments and verify bank details accurately.

Canceling an ACH withdrawal

To cancel a scheduled ACH withdrawal, contact your ACH provider or bank. Cancellations are often possible online if completed before batch processing. You may be able to request a reversal if the withdrawal has already been processed, but it may involve additional steps and fees.

Sometimes, if a transaction cannot be completed, ACH return codes can be sent.

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How long does an ACH withdrawal take?

ACH withdrawals generally take 1–3 business days to complete. The exact timing can depend on factors like the ACH provider, the time the request is submitted, and whether same-day processing is selected.

Standard ACH transactions typically clear within this timeframe, but it may take longer if the withdrawal is initiated late in the day or just before a weekend. Some providers offer same-day ACH processing, which can speed up the transaction but usually comes with a higher fee.

Fees

ACH fees are generally lower than credit card or wire transfer fees. Here’s an overview:

• Standard ACH fees: $0.25–$1.50 per transaction
• Same-day ACH fees: $1–$5 per transaction
• Monthly/annual fees: Some providers charge a flat fee for ACH services, including a set number of transactions

ACH’s low costs make it ideal for businesses that frequently handle recurring payments or high transaction volumes. For current fees and processing standards, consult Nacha or the Electronic Payments Network (EPN).

How is ACH different from direct deposit and wire transfers?

Automate ACH payments with Ramp

Ramp is a finance automation and spend management platform designed to empower accounts payable teams at businesses of all sizes, helping them streamline operations and achieve their financial goals.

With Ramp’s accounts payable software, every step—from processing invoices to approvals—frees you from manual tasks. AI-powered data entry, OCR technology for invoice capture, and ERP integrations that sync bills, vendor information, and purchase orders in real time take the hassle out of managing recurring payments and batch transactions.

Take control of your ACH payments—explore Ramp’s AP system.

This post includes general information about ACH payments. For help with ACH functionality specific to Ramp, visit Ramp Support for more details.