Last editedApr 20233 min read
If you have automatic, recurring ACH payments set up to pay your bills, it’s important to know how to stop them from taking place should you ever need to. Consumers have the right to revoke ACH authorization from an organization, but following the correct steps is a must.
What is an ACH payment?
An ACH payment is a type of electronic bank-to-bank payment that operates through the ACH Network, instead of going through card networks like Mastercard or Visa. ACH (Automated Clearing House) is a network run by Nacha, and ACH payments have been processed via the network since the 1970s. ACH payments can be used at a government, consumer, and B2B level, and can also be used for international transfers.
There are two main types of ACH payment: direct deposits and direct payments. Direct deposits may include payroll, expense reimbursement, government benefits, taxes, interest payments and more. Direct payments represent the use of funds to make payments by either an organization or individual.
By using the bank-to-bank infrastructure to process payments, ACH offers major benefits for businesses who take payments on a regular basis. It can be expensive to run payments through a card network, so ACH payments are typically much cheaper than other methods of electronically transferring funds.
Because credit and debit cards expire, they can cause involuntary churn. This is not the case for ACH, as for ACH payments the bank account itself is the source of funds. ACH payments are also open to anybody with a US bank account – businesses and consumers alike.
A downside of ACH payments is that they tend to take longer than wire transfers. While wire transfers are processed in real time and can be completed within a day, ACH payments may take several business days to settle. On the other hand, a wire transfer comes at a cost of $25 per transaction on average, while an ACH payment costs a median of $0.29 per transaction. Unless a quick turnaround is essential, an ACH payment is almost always the better option.
What is an ACH debit?
Consumers can use ACH debits for regular bill payments, wherein organizations can automatically pull funds from an account when they’re due. This is a helpful way to ensure you never miss a payment or face late fees, as the amount you owe is simply taken automatically. To arrange an ACH debit, you must sign an agreement that authorizes the organization to withdraw funds from your account when payment is due. This agreement is known as an ACH Authorization.
While this automatic debit system is useful, there may be cases where you’d need to delay or alter an ACH debit. You always have the right to revoke payment authorization from an organization, but there are a few steps you must follow carefully to do so.
How to stop ACH payments
Because instant ACH transfers are generally not available, payments take a few days to settle, so you have a bit of extra time to stop payment on ACH transactions if need be. The ACH stop payment rules may differ depending on your bank. While some banks will be able to cancel an ACH payment over the phone or online, others may require you to submit a form requesting the cancellation.
Recurring ACH debit payments are able to be cancelled, but you must do so at least three business days before the payment is due. To cancel a recurring ACH payment, you’ll need to first contact the company you’re paying and inform them that you’re revoking their access to your account. You can do this over the phone, or you can write the company stating clearly that you are revoking authorization.
Then, you’ll need to contact the bank or credit union that’s associated with the payment and let them know that you’ve revoked authorization from the company. Again, you may be able to do so over the phone, or you may be asked to write a stop ACH payment letter or complete a form.
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In some cases, you can submit a stop payment order directly to the bank even before you’ve formally revoked permission from the company. A stop payment order instructs the bank to prevent the automated transaction from taking place until you’ve formally cancelled the arrangement. There may be a fee to use a stop payment order, and the form must be submitted at least three business days before payment is scheduled. There are a number of ways you can submit the order, including in-person.
You can view a sample ACH stop payment form from Merck Sharp & Dohme at this link.
You can use stop payment orders to stop the next scheduled payment, or to prevent all future payments. If it’s the latter, you’ll need to provide the written order within 14 days of notifying the bank.
Once the above has taken place, the ACH payments should no longer take place. If you do notice that a payment has gone through that shouldn’t have, you should contact the bank or credit union immediately. You have the right to dispute any unauthorized transfers.
Of course, when revoking automatic payments, you will still need to pay what you owe, and you’ll need to do so manually.
How to reverse an ACH transfer
You are able to reverse an ACH transfer after it has already gone through if either the wrong amount was transferred, the wrong account number was used, or if the transaction was duplicated. Should any of these issues occur, the bank should notify the account holder that the payment has been reversed.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.