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11 min

What is an ACH withdrawal and how does it work?

Discover what ACH withdrawal is and how it works in our comprehensive guide. Learn about the process and the benefits of ACH withdrawals for your SMB.

Published at | Updated:
The owners of a fashion boutique using a laptop to set up online payments to suppliers.

Small businesses are loving ACH bank transfers and the way they simplify payments. ACH bank transfers’ value share in the industry has increased from 32.2% in 2019 to 47.9% in 2024, according to eMarketer.

Now, with almost half of B2BBusiness-to-business (B2B) Business-to-business refers to operations done between businesses. B2B payments are transactions made between two businesses or companies. companies using it, you’re bound to come across it as well. And with it, all the financial terms that come with handling this can be confusing at first.

But ACH is about simplifying your life, so we thought we’d use this post to follow up on our ultimate guide to ACH. Our intention is to clarify the specific aspect of ACH withdrawal, so you can skip the hard part of figuring it out, and head straight into using it.

What is ACH?

ACH stands for “Automated Clearing House.” It’s a network that enables the safe transfer of funds between accounts—say, from a client’s bank account to a supplier’s bank account. The network is comprised of member financial institutions (AKA clearing houses) and is governed by Nacha, which ensures its compliance and security.

How popular is ACH?

Thanks to its cost-effectiveness and the fact that it can be done entirely online, ACH is among the most popular options for domestic transfers in the U.S—for both businesses paying and vendors receiving funds.

While ACH transfers can now also be used for international transactions, it is not yet supported by all banks, making them less accessible for this purpose. Nevertheless, in the third quarter of 2023, the ACH network processed 7.8 billion payments, valued at $19.7 trillion, reports Nacha. The value of ACH transactions in the B2B industry alone rose by 9.6% in one year, to $1.7 billion.

The differences between ACH and wire transfers

ACH is similar to other payment methods. We’ve discussed the difference between ACH and SWIFT in a different blog post. Now, let’s explore how ACH compares to wire transfers.

While wire transfers are direct transfers between one bank account to another, ACH payments go through the Automated Clearing House, thus creating several differences. Here are the key ones:

International transfers

  • ACH can be used internationally, but it’s not yet supported by all banks, so your ability to perform this might vary.
  • International wire transfers have been available for a long time, making it easier to initiate such a transfer.

Cost

The Clearing House performs ACH transfers in bulk, which means it’s less costly. Wire transfers are done on a case-by-case basis, and you see the difference in the price.

  • ACH usually costs a few dollars per transaction at most. In many cases, you’ll pay less than one cent.
  • Wire transfers cost both the paying and receiving parties $10-50 each. If you’re using different currencies, you might end up with additional costs.

Use cases

To sum up, let’s review which payment option is best for popular use cases.

  • Best use cases for ACH: Small transactions (because wire transfers are too expensive for those) and recurring payments (for long-term efficient budgeting).
  • Best use cases for wire transfers: Immediate transfers, international transfers, and especially bulk transfers. If you’re getting multiple payments from the same vendor at the same time, ACH doesn’t let you distinguish which part belongs to which invoice. Everything is paid together by the Clearing House. Wire transfers can easily be done one by one. And, of course, if the transfers are big enough, the more expensive wire transfer fee might not make a difference to you.

If you need a deeper explanation, we’ve got you covered. Here’s a deeper dive into how ACH differs from a wire transfer.

More specifically, what is ACH withdrawal?

But we’re here to talk about ACH withdrawal, so let’s dive in. Say you got coffee with a colleague who left their wallet at the office, and you ended up covering the bill. The colleague now has several ways to pay you back:

  • Buy you coffee next time.
  • Hand you cash.
  • Send you a payment via a mobile app or bank transfer. 
  • Tell you to reach into their purse and take the appropriate amount when you get back to the office.

That last option is much like an ACH withdrawal. It is a type of payment where the payorPayorAll transactions have at least two players–the payor is the one who’s paying, and the payee is the one who receives the payment. gives the recipient permission to withdraw money directly from their account. This might go without saying, but we recommend only granting this permission to people and organizations you know well and trust.

What else is ACH withdrawal called?

Even now that you understand the ACH withdrawal meaning, it’s easy to get confused. That’s because this process has additional names. If you hear…

… know that it’s the same as ACH withdrawal.

How does ACH withdrawal work?

An ACH withdrawal takes three main steps:

Step 1: Authorize the ACH withdrawal

The payor authorizes the recipient to withdraw funds directly from her or his account.

Step 2: Request the withdrawal

The recipient of the payment sends a withdrawal request for the open balance to the payor’s bank. They do it through the ACH network.

Step 3: Processing the withdrawal

The bank approves and processes the ACH payment, transferring it to the recipient.

Three illustrations describing how ACH withdrawal works in three simple steps.

You’ve probably used ACH withdrawals without even knowing it

Want an example? Have you ever signed up for an app using your bank account? In many of these apps, validating the account means you’re giving the app authorization to withdraw funds in correlation with the payments you make.

Are ACH withdrawals safe?

As ACH payments grow in popularity with businesses, they also grow in popularity with scammers. Therefore, wondering about the safety of ACH is understandable. 

However, while ACH credit payment (initiated by the payor) fraud exposure increased by 6%, from 24% (in 2021) to 30% (in 2022) ACH withdrawal, or debit (initiated by the payment receiver), fraud exposure decreased by 7%, from 37% (in 2021) to 30% (in 2022) according to a J.P. Morgan and AFP Research report.

This is slightly safer than wire transfers (31% fraud exposure in 2022) and corporate credit cards (36%), and much safer than checks (where 63% of organizations were subject to fraud in 2022), according to the report.

All in all, while risk exists, 70% of report participants who used ACH withdrawals weren’t exposed to fraud.

When is ACH withdrawal used for B2B transactions?

ACH withdrawal is a convenient way to set up recurring payments to vendors with whom you have an ongoing relationship. It’s especially useful when you’re paying the same vendor periodically, but the amount varies each time. For example:

  • Utility bills
  • An accounting firm’s billable hours
  • Recurring purchases, such as produce, office supplies, and paper products

Using ACH withdrawal allows your vendor to automatically charge you with the up-to-date sum each month with no additional action required on your part. Remember, preferably, this needs to be a vendor who you:

  • Have worked with for a while
  • Trust wholeheartedly
  • Know has a very credible reputation in the industry

What are the pros and cons of ACH withdrawals for businesses?

We’ve already established that an ACH withdrawal can be a useful tool in your payment method belt. Still, it’s important to assess the benefits and risks associated with it, before deciding to use it for your business.

Pros of using ACH withdrawal

  • Convenience. Instead of manually sending a payment each month, your vendors can automatically charge you the right amount periodically. You don’t have to do anything.
  • Price. Unlike wire transfers, ACH transfers are relatively cheap, so you’re not spending too much money to pay the bills.
  • No maintenance required. Once you set up and authorize an ACH debit to your vendor, the payments go through regularly according to the terms you agreed upon. You can always revoke the ACH withdrawal authorization.
  • No late payments. Since there’s no need to take additional action for the payment to go through, you’re never at risk of accidentally skipping a payment.
  • Safety. The several days it takes for an ACH withdrawal to get processed are an opportunity for you and your bank to catch any fraudulent or erroneous activity, and reverse the payment if needed.

Cons of using ACH withdrawal

While ACH withdrawals are typically safe, and Nacha is constantly working to ensure this safety, there are ACH fraud concerns to take into account when choosing to pay via an ACH withdrawal: 

  • Breach of trust. When you authorize an ACH withdrawal, you’re essentially giving your vendor permission to extract money from your account. This freedom can be misused.
  • Compromised credentials. As with all ACH transactions, an ACH withdrawal requires you to provide your vendor with your bank account number and routing number. If these credentials get into the wrong hands, they can be used to facilitate ACH fraud. This can happen even if the vendor is reliable, but gets hacked (or hires that one wrong person, who’s not as reliable as the vendor hoped).

To decrease the chances of fraudulent charges:

  • Only trust reliable vendors for ACH withdrawals. Ideally, these are vendors that have an ongoing relationship with you and a very reputable name in the industry.
  • Go over your charges periodically to see if you detect anything out of the ordinary in time to reverse the payment.

What do you need for an ACH payment?

When you want to get an ACH payment, you need to provide:

  • Name
  • Account number
  • Routing / ABA number
  • Payment amount

How to make an ACH withdrawal?

The ACH payment process is simpler than it sounds.

  • Step 1: You send the request to the bank
  • Step 2: The bank submits the request to the ACH network
  • Step 3: The ACH network processes the withdrawal
  • Step 4: The payment from your payor is deposited in your account

Want to make it even easier? Sign up for Melio to initiate ACH transfers to vendors with a few clicks.

An image describing how to make an ACH withdrawal in simple steps

How long does an ACH withdrawal take?

Usually, an ACH withdrawal takes a few days, in order to verify the withdrawal is valid. You can often pay an additional fee to expedite the incoming payment.

Unauthorized ACH withdrawals: What can you do?

The ideal situation is catching the unauthorized ACH withdrawal before it’s transferred to the receiver. Some ACH transfers take several days, yet some do happen faster.

In any case, in the U.S., the Consumer Financial Protection Bureau (CFPB), a U.S. government agency, recommends notifying your bank or credit card union, even if the transaction has already been completed.

How to cancel an ACH withdrawal?

You can cancel an ACH withdrawal by notifying your receiver, your bank, or both

Take into consideration that you can stop future withdrawals, but if a vendor already performed agreed-upon services, paying for that will likely still be required. 

If it’s a vendor you no longer trust, it’s likely best to cancel the ACH withdrawal permission, make a one-time manual transfer and close this chapter.

Wait, there’s another type of ACH transfer?

There are two main types of ACH bank transfers: ACH withdrawal and ACH credit. Here we discussed what ACH withdrawal means, but ACH credit is actually the more common kind of ACH.

ACH credit works just like a regular bank transfer. It’s initiated by a payor sending a single payment directly to a recipient’s bank account. Some of its wide-ranging uses include:

  • Governments that pay social benefits to citizens
  • Companies that pay vendors for goods and services
  • Employers that pay salaries to employees

ACH credit has been embraced by digital accounts payable tools, including Melio, contributing to its popularity.

Is there an easy way to send ACH payments online?

When you sign up for Melio, you’ll have an easy way to pay your business bills with ACH. It only takes a few minutes to get started. Once you connect your bank account, you’ll be able to send ACH transfers to vendors, contractors, and suppliers–and they get paid however they choose. It’s just a better way to do business.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.

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