What is an ACH debit?

For an ACH credit, the payer starts the transfer. For an ACH debit, the payee starts an authorized collection. “Credit” therefore does not mean every payment a business receives.

Direct deposit of wages is a familiar ACH credit; an automatic utility collection is a familiar ACH debit. A debit-card purchase uses card-payment processing, so its name does not make it an ACH debit.

After authorization, the collecting business sends the instruction through its bank or payment provider. The originating bank, or ODFI, submits the entry to an ACH operator. That operator routes it to the account holder’s receiving bank, the RDFI.

The receiving bank handles the entry, and the businesses check the payment status and any return. Nacha administers the rules; the Federal Reserve and The Clearing House operate the network. The collecting business is called the Originator. The account holder whose account receives the debit entry is the Receiver.

Routing and account numbers alone are not permission to debit an account. Authorization must fit the collection, including whether it is one-time or recurring. Requirements differ by account type and how authorization is obtained.

For the $180 maintenance bill, permission to collect that invoice does not authorize every later invoice. Before changing the amount, schedule or arrangement, check the authorization and the provider’s process.

ACH entries use Standard Entry Class codes to identify their category. Tell the originating bank or provider whether the account is a consumer or business account and how the payment was authorized, then use its supported process to select the code.

ACH supports regular and Same Day processing. Cutoffs, banking days, eligibility and the provider’s funding policy affect when it shows funds as available. A scheduled collection can still fail, including when the account lacks sufficient funds.

Ask separately for the submission deadline, expected settlement date and funds-availability policy. Check current charges for the debit, returned payments and any account or service fees. Banks and providers do not all charge the same price.

1. Confirm that the account and provider support the collection you intend to make.
2. Retain the authorization with the customer and invoice records. Check the amount and collection date before submitting.
3. Monitor the result. If the debit is returned, investigate the reason and applicable rules before retrying.
4. Use the bank or provider’s process for cancellation, correction or an authorization dispute.

Recurring collection means the customer does not have to start each payment. It still needs someone to monitor failures and resolve what remains owed.