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Small business guide to ACH return codes

Understanding ACH returns, what causes them, and how to handle them is the best way to ensure the ACH process remains as smooth as possible for your business. So, what happens if an ACH payment is returned? We’ve got you covered. Find out everything you need to know about ACH return codes and ACH return fees, right here.

What are ACH returns?

ACH (Automated Clearing House) payments are a type of electronic bank-to-bank payment for businesses based in the U.S. An ACH return simply means that – for whatever reason – the ACH couldn’t collect the funds from the customer’s account. This results in an ACH return code, a three-character code that provides a little more detail about the specific nature of the problem.

Can ACH payments be returned?

Yes, ACH payments can be returned, and it’s a normal part of standard ACH processing. There are a broad range of reasons for returned ACH card payments, including insufficient funds, revoked authorisation, or an invalid account number.

What are the different ACH return codes?

There are around 80 different ACH return codes. Some of the most common include:

  • RO1 – Insufficient Funds: This means that the available balance isn’t enough to cover the value of the debit entry

  • R02 – Account Closed: This means that a previously active account was closed by the customer

  • R03 – No Account/Unable to Locate Account: This means that although the structure of the account number is valid, the account number doesn’t match up with the individual identified in the entry. Alternatively, it may indicate that the account isn’t open.

  • R04 – Invalid Account Number: This means that the structure of the account number isn’t valid.

  • R05 - Unauthorised Debit to Consumer Account Using Corporate SEC Code: This means that a debit entry was transmitted to a consumer account, but the receiving member hasn’t authorised the entry.

You can check out the full list of ACH return codes here. They cover a broad range of potential issues, from Duplicate Enrolment and Invalid DFI Account Numbers to Invalid Company Identification and Trace Number Errors.

What happens if an ACH payment is returned?

ACH debit returns are generated by the receiving depository financial institution (RDFI) in response to a transaction. Many people believe that after an ACH transaction has been finalised, the process is complete – but that’s not the case. For a variety of reasons, an ACH operator may request the funds be returned. So, how do returned ACH card payments work in practice?

Put simply, when a request is submitted to an ACH operator, the funds are granted. Then, the request is dispatched to the bank holding the accounts, and if the request cannot be fulfilled, the operator requires them to be returned. ACH return codes are the method by which the money is taken back.

It’s also worth brushing up on the concept of “notice of change” (NOC), as this can play a part in the ACH debit return process. Basically, a customer’s bank account information may change as a result of changes in account numbering schemes, bank mergers, and so on.

If this happens, businesses that submit an ACH request using outdated information will have their request processed, but updated information about the account will be sent back to them. This updated information is referred to as a notice of change, and it requires the submitter to update the customer’s bank account information before the next request is submitted.

If outdated information continues to be used in subsequent requests, the transaction may not be able to be processed, leading to an ACH debit return.

What’s the time frame for an ACH debit return?

Generally speaking, ACH return codes have a turnaround time of two banking days. However, certain ACH return codes may have a slightly longer turnaround time. For instance, unauthorised debits to consumer accounts tend to have a 60-day return timeframe, as banking regulations are relatively consumer-friendly.

How much are ACH return fees?

It’s always a good idea to get a better understanding of the fees involved with the ACH system. On average, ACH return fees range from $2-$5 per return.

Can returned ACH card payments be disputed? 

Yes, if the return meets any of the following criteria, you can request the Originating Depository Financial Institution (ODFI) dishonour the return:

  • Was misrouted

  • Was a duplicate

  • Incorrect information

  • Not returned within the proper time frames

  • Resulted in unintended credit to the receiver related to the reversal process

Dishonoured returns must be sent within five banking days of the return settlement date, and they can be contested by the RDFI. If this happens, then recovery will need to take place outside of the ACH network.

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