The ACH (Automated Clearing House) network processes different types of electronic transactions, including direct deposits and direct payments. If those types of ACH payments can’t be processed properly, they may result in ACH returns.
This article will explain everything your business needs to know about ACH returns, including why they happen, how they work, and how you can best handle the returns process. We’ll also include information on ACH fees and return codes.
An ACH return is an electronic transaction that’s sent back to the original sender by the recipient's bank. This happens when the payee’s bank can’t process the transaction, whether it’s due to insufficient funds, an invalid account number, or a closed account – among other reasons.
Once the transaction’s been returned, the sender’s bank will notify the original payer and may charge a fee for the return. The sender’s bank may also try to resend the payment, or contact the payee directly in order to resolve the issue.
ACH returns are common. However, your business should still follow the best practices when handling ACH return transactions to help minimize the risk of repeat returns, and to prevent returns before they happen. We’ll explain everything further down the page.
ACH returns and ACH reversals are both caused by errors and are governed by NACHA (National Automated Clearing House Association). However, they follow different rules.
ACH returns are best understood as rejected payments initiated by the recipient’s bank, with a specific time frame when the return must be received, depending on the return code.
An ACH reversal is a manual request to cancel a completed transaction. The reversal must be initiated within 24 hours of finding the error, and within five days of the original transaction.
ACH returns are caused by transactions that can’t be processed properly. When transactions go wrong, the ACH network notifies the originating bank that it couldn’t collect funds from – or deposit funds into – the recipient’s account.
Unlike credit or debit card transactions, ACH transactions don’t happen in real time and can be returned even after the transaction appears to be finalized. When ACH returns happen, the recipient bank generates a return code and notifies the originating bank.
There are many reasons why transactions may fail to be processed – all ranging in levels of severity. For example, ACH returns can be due to an incorrect account number, or by more complicated reasons like the recipient revoking authorization for the transaction.
There are over 80 ACH return codes, but these are the most common:
These codes are there to help your business understand why the ACH was returned, which should help you to resolve the issue. The end goal is to help your business avoid repeating these failed transactions, or by preventing ACH returns before they happen.
If an ACH transaction is returned, the receiving depository financial institution (RDFI) will notify the originating financial institution (ODFI) and generate a return code.
Here’s a breakdown of what happens:
No two banks are truly the same, so it’s worth checking with your bank on their specific process for ACH returns. We recommend that you regularly monitor your ACH transactions to help prepare your business for ACH returns, ensuring you can resolve the issue quickly and easily.
On average, ACH return fees cost $2 to $5 per return. ACH return fees are charged by the bank, and work in a similar way to bounced check fees. The sender may not always be charged by the bank, but it’s worth checking with your bank about their ACH return charge policy.
Unlike credit card chargebacks, you can’t dispute ACH returns. However, there are some ways your business can help protect itself from recurring ACH returns, including:
By following these best practices, you should stand a better chance in managing and minimizing ACH returns, helping you save time and money.
Learn more: A guide to fraud monitoring
ACH payments are a cost-effective alternative to credit card transactions, while opening up your business to the ACH network comprising 130 million US bank accounts. Best of all, Checkout.com makes it easy for your business to start accepting ACH payments.