ACH payments are one of the most affordable payment methods for business owners. By accepting ACH transactions from customers, your business can significantly reduce its payment processing costs. This affordability has led to the ACH network being one of the nation's most popular payment platforms, with more than 8.3 billion ACH payments being transacted in the second quarter of 2024. However, ACH payments aren't without their downsides. One drawback to consider is the cost and inconvenience of returned payments. An ACH return code is generated when the ACH network returns a payment. The return code signifies the reason for the payment failure. For example, it may indicate there were insufficient funds or that the account number doesn't exist. Regardless, business owners must understand mobile ACH return codes and their impacts. This guide explores returned ACH payments, what causes ACH returns, how long ACH returns take, a full list of ACH return codes, and other related topics. Read ahead to learn about ACH returns and how they may impact your business! A returned mobile ACH payment occurs when a mobile ACH transfer fails. It's similar to a bounced check. In many cases, ACH returns occur because the sender has insufficient funds or provides incorrect details during the transfer process. Returned mobile ACH payments cause headaches for business owners. If a business has already provided a product or service, returned ACH payments may result in lost revenue and cash flow issues. Likewise, fees may be applicable if an ACH return occurs. So, how do ACH returns work? Let's explore the step-by-step process: It's critical to distinguish between ACH returns and reversals. With ACH returns, the payment fails — any money transferred to the receiving account automatically returns to the sender's account. This is similar to a bounced check or a failed credit card payment. On the other hand, an ACH reversal involves a request to cancel an already-completed payment. It's more similar to a refund than a failed payment. To complete an ACH refund (or payment reversal), the request must be initiated within five banking days of the transaction date. ACH transactions, also known as Automated Clearing House transactions, are bank-to-bank transfers facilitated by the National Automated Clearing House Association (NACHA). There are two types of ACH payments: ACH deposits and ACH credits. Let's explore a step-by-step guide for how ACH transactions work: So, what is an example of an ACH payment? If a business allows customers to set up direct deposits for recurring bills, such as utilities, this is usually done using an ACH payment. Bank-to-bank transfers help utility businesses reduce payment processing costs at scale. ACH transfers first began operating in 1972. The ACH network is now one of the most integral components of the money transfer sector in the United States—it is responsible for more than $76 trillion worth of transactions annually. While traditional ACH payments take multiple business days to settle, a new Same Day ACH product allows individuals and businesses to conduct same-day transfers using the network. ACH returns occur for various reasons, from the sender having insufficient funds in their account to the customer rescinding authorization. When an ACH return occurs, your business will receive an ACH return code corresponding to the reason for the return. For example, if you receive an ACH return code R04, it means an invalid account number was provided for the transaction. Unfortunately, while some ACH codes are straightforward, others are vague. For example, R07 indicates that the customer revoked authorization but doesn't indicate the reason the authorization was revoked. To find out more, the merchant must contact the customer or the originator's bank. In most cases, ACH returns settle within two days. This means the payment originator should receive the funds back into their account within 48 hours of the RDFI sending the return code to the ODFI. However, if it is a customer-initiated code, such as R07 (customer revokes authorization), then it may take up to 60 days to resolve. While two days may not sound like a long time, it can create numerous problems for businesses accepting ACH payments. This means it may take multiple days for the customer to fix the ACH issue and re-attempt the payment. If your business is dependent on quick payments and reliable cash flow, ACH returns may cause massive headaches!What is a Returned Mobile ACH Payment?
ACH return vs. ACH reversal
How Does an ACH Transaction Work?
What Causes ACH Returns?
How long does an ACH Return Take?
What happens if ACH payments are returned?
If ACH payments are returned, the payment originator should receive a refund within 48 hours (unless it's a customer-initiated return, in which case it may take up to 60 days). Likewise, the originator may have to pay an ACH return fee.
From a business's perspective, ACH payments create various issues. Not only do failed ACH payments result in cash flow issues for businesses, but the National Automated Clearing House Association (NACHA), which manages the ACH network, has strict guidelines for how many ACH returns are acceptable for businesses. It assesses ACH returns on a rolling basis for the preceding 60 days. Let's explore the ACH return limits below:
- Overall Returns: Must remain below 15% of transactions
- Administrative Returns (R02, R03, and R04): Must remain below 3% of transactions
- Unauthorized Returns (R05, R07, R10, R29, and R51): Must remain below .5% of transactions.
Not adhering to the above ACH return rate thresholds may result in enforcement proceedings and fines.
What is an ACH Return Fee?
ACH return fees are charges associated with failed ACH payments. To cover the costs of processing ACH returns, many payment providers issue fees to payment originators if they're at fault for failed ACH payments. ACH return charges vary depending on the payment provider and circ*mstances.
ACH Return Codes List
Understanding ACH return codes makes it easier to manage returned payments within your business. While return codes don't provide a detailed analysis of why a payment is returned, they ensure you understand the basic premise of the return. The most common ACH return codes are "customer-initiated return codes and bank-initiated return codes." However, there are also some lesser-known return codes. Let's explore a full list of ACH codes:
Customer-initiated Return Codes
Let's explore the primary customer-initiated return codes:
- R05: Unauthorized consumer debit using corporate SEC code
- R07: Authorization revoked by customer
- R10: Customer advises unauthorized, improper, ineligible, or party of an incomplete transaction
- R11: Check truncation entry return
- R29: Corporate customer advises not authorized
Bank-initiated ACH Return Codes
Let's explore the primary bank-initiated return codes:
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Less Common ACH Return Codes
Let's explore other types of ACH return codes:
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What to Do if a Payment is Returned?
If a customer sends your business a payment and it's returned, it's best to contact the customer directly to find a way to correct the issue. In some cases, it may be due to a minor technical issue, such as the customer using the incorrect account number for your commercial bank account. Regardless, speaking with the customer before re-attempting payment is the best way to avoid further issues, as an additional failed ACH payment may result in more delays and fees.
However, if the reason for the returned ACH payment is that the customer revoked authorization, the issue may be a bit more complicated. You'll need to determine if the transaction was legitimate and whether you want to dispute the ACH return.
Can Returned Mobile ACH Payments Be Disputed?
Most returned ACH payments are not eligible for dispute. For example, if an ACH return occurs because a bank account doesn't exist, your business cannot dispute it. However, if a customer claims a transaction is unauthorized, your business can dispute the return if you believe the customer is incorrect.
This is very similar to chargeback fraud, where customers attempt to file chargebacks for goods or services they have already received. Make sure to protect your business from all types of payment disputes by having strong controls in place to avoid fraudulent ACH returns.
How to Prevent Returned ACH Payment and Reduce Your Risks?
If your business uses ACH billing, preventing returned payments is essential to protecting your bottom line. Not only do ACH returns result in cash flow issues, but they can also lead to fines from NACHA (or, in some cases, loss of access to ACH payments). As previously discussed, you must keep ACH returns below the 15% threshold (and lower thresholds for specific types of ACH payments, such as administrative returns and customer-initiated returns).
So, how do you reduce your risk? Let's find out:
Confirm all details
Whether your business is sending or receiving an ACH payment, it's critical to confirm all details before initiating a payment. This is the simplest way to avoid unnecessary ACH payment returns.
Don't immediately fulfill orders
As ACH payments take longer to settle, they create an opportunity for fraudsters. If a customer says they initiated a payment, don't take their word for it — wait for the payment to clear. If a customer wants to pay with ACH, make sure they know it takes longer for your business to fulfill the order.
Communicate with customers
Next, always communicate with your customer if there are any issues. If there's an issue with a payment, it's better to resolve the problem before re-attempting a transfer.
Use a high-quality merchant service provider
Lastly, partner with a high-quality merchant service provider to avoid ACH payment returns. A merchant service provider will provide advice and resources to help reduce your returned ACH payments. Likewise, they'll have access to alternative payment methods so your business can benefit from better payment solutions. Never underestimate the power of choosing the right merchant account provider!
Final Thoughts on Returned ACH Payments
Now that your business understands ACH returns, how they work, and the ACH codes that correspond to various payment issues, it's time to protect your business from ACH return fees. Always use responsible ACH practices within your business to ensure you don't pay excessive ACH return fees or experience cash flow issues due to rejected ACH payments.
It's essential to choose a reputable merchant service provider if you want to protect your business from disputed payments. Whether it's ACH returns, chargebacks, or any other type of disputed payment, a security-focused merchant service provider is an excellent resource!
Returned Mobile ACH Payment FAQ
An ACH return refers to a failed ACH payment. When an ACH transfer cannot be completed, the money returns to the sender's bank account. Likewise, an "ACH return code" is generated to explain why the payment failed to complete. For example, the return code may indicate the transaction wasn't authorized by the sender or that the account number was incorrect.
If a merchant receives a returned ACH payment, they may want to attempt payment again to recover the funds. However, there is a three-time limit on retrying ACH payments, so make sure not to exceed this threshold if you are re-attempting an ACH transfer. The three-time limit is imposed by the National Automated Clearing House Association (NACHA). However, your commercial bank may also have its own limit for retrying ACH payments, so check your bank's guidelines, too.
The 5-day ACH rule refers to the time limit for an ACH reversal. If a payment error occurs, the reversal request must be sent to the bank within five days of settlement. Likewise, the reversal must be sent to the bank within 24 hours of noticing the error. This rule is maintained by the National Automated Clearing House Association (NACHA).
ACH returns are similar to a bounced check. Many occur because senders have insufficient funds in their account or don't provide the correct information during the payment initiation process. When a payment cannot be completed, an ACH return code is generated to indicate the reason for the payment failure. As with bounced checks, ACH returns can cause headaches for business owners as they may result in fees or lost revenue.
No, an ACH payment will not be processed if the senders have insufficient funds in their account. In this instance, the merchant will receive an ACH return code R01, which indicates the sender's account had insufficient funds to complete the transaction. If you want to send money using an ACH transfer, always confirm your bank account has sufficient funds before proceeding.
The 60-day rule for ACH refers to a customer protection guideline for ACH payments. The rule dictates that customers can request an ACH payment return within 60 days if they didn't authorize the payment (i.e., the payment is fraudulent). So, if you're a consumer and you believe someone used your bank account to process an ACH payment fraudulently, make sure to report it within 60 days. The 60-day return limit only applies to consumers — businesses have two days to request an ACH payment return for unauthorized payments.
The length of time it takes for an ACH transfer to bounce back depends on the type of ACH return. For most ACH returns, it takes up to two days for the original entry to be returned. However, if a customer is disputing or revoking authorization on a charge, the process is more complicated, and it may take up to two months for the original entry to be returned.
