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If you run a business, there are few things more important than making sure you get paid promptly. This is how you maintain your cash flow, boost your net profit margins and build up the funds needed to pay for future investment. Unfortunately, getting customers to pay on time is often easier said than done, and an automated clearing house (ACH) withdrawal is one method which works more efficiently than most. Working with GoCardless is the best way of making sure your payment processes meet customer expectations and run smoothly, of course, but it helps to know exactly how a method such as an ACH withdrawal actually works.
What is an automated clearing house?
When you make a withdrawal from an ACH, you pull the funds which you are owed from the bank account of the party owing you the money. This account will already have authorised the transfer of funds, so that the ACH withdrawal can take place. The process takes place through the ACH network. This is an electronic network which is in place to facilitate transfers between various financial institutions. An ACH withdrawal is a pull payment method, taking funds from one account to another.
Some of the terminology connected to an ACH withdrawal
The party which initiates an ACH transaction – in this case your business – is known as the originating depository financial institution (ODFI)
The financial institution used by the other party – the customer in this case – is referred to as the receiving depository financial institution (RDFI)
What will you need to make an ACH withdrawal?
In order to make an ACH withdrawal, you need to access your own banking information, as well as the details of the customer’s bank, such as their account number. You also need to have a record of the payment terms which were agreed between merchant and customer, authorisation to make the ACH withdrawal and access to the right kind of ACH provider.
Process of an ACH withdrawal
An ACH withdrawal takes place through the following steps:
You as a merchant request an ACH withdrawal, and the process is initiated. The customer, having decided to pay by ACH withdrawal, provides their banking details to the merchant or to a payment processor such as GoCardless.
The request you have made is sent to the relevant bank. You or your payment processor pass the ACH withdrawal request to your bank, accompanied by the banking information given by the customer.
The bank then transfers that request to the relevant ACH. Your bank bundles your ACH transaction with all the others it is dealing with throughout a working day and sends these to the ACH.
The ACH processes the withdrawal request. The ACH takes receipt of these transactions and submits the request made by you as a merchant to your customer’s bank.
The withdrawal is then made. The withdrawal request is processed by the ACH and the relevant payment amount is credited to your bank account.
Advantages of an ACH withdrawal
The advantages of an ACH withdrawal include the following:
Lower fees than most credit card transactions, cutting the costs of doing business
Higher levels of security than payments made using methods such as cash or cheques, thanks to the security infrastructure of bodies like the ACH
The convenience of being suitable for recurring payments such as utility bills
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.