ACH Payment Risks

What is ACH?

ACH is an interbank network for clearing checks electronically. ACH is a one-way messaging system for payment processing. Meaning, that a transaction in ACH is assumed to have succeeded unless the receiving bank sends a failure notice. Based on the reason for failure, the receiving bank can have up to 60 days to return a transaction, assuming they have return rights. In practice this means if you released an ACH credit in 3 business days to your user, you might still receive a return up to 57 days later.

ACH returns are broken into four categories:

Unauthorized

These returns occur when the account holder of the ACH account informs their bank (receiving bank) that the transaction was not authorized by them. NACHA guidelines allow account holders to take up to 60 days to dispute these kinds of transactions. Return codes R05, R07, R10, R11, and R29 signify unauthorized returns.

• NOTE: NACHA Rules require that Unauthorized Returns are not more than 0.5% of all ACH requests in a 60 day period. For example, no more than 5 unauthorized returns per 1,000 requests.

Administrative

Administrative returns indicate that a transaction was returned due to administrative or account data errors. They occur within 3 business days of settlement. Return codes R02, R03, and R04 signify administrative returns.

• NOTE: NACHA Rules require that Administrative Returns are not more than 3.0% of all ACH requests in a 60 day period. For example, no more than 30 administrative returns per 1,000 requests.

Auto Rejection of Late ACH Returns

Auto rejection logic is in place for ACH returns that occur 60 days or greater after transaction settlement. If an ACH return request is received after 60 days of the payment settlement date, the request will not be honored.

Others

The rest of the returns are just other types of returns allowed by the ACH network. Like Administrative, these returns also occur within 3 business days of settlement.

• NOTE: NACHA Rules require that the sum total of ALL returns cannot exceed 15% in a given 60 day period. For example, no more that 150 total returns per 1,000 requests.

Dishonoring a Return

Dishonoring a return is only allowed in circumstances where the return notice is late. This means, if Administrative and Other returns are coming to us after 3 business days or Unauthorized are coming after 60 days, then they can be dishonored. Otherwise, all other ACH Returns must be honored in compliance with the NACHA consumer protection guidelines.

Return Reason Codes

The ACH network signals a return code when an ACH transaction is rejected. The risk level varies based on the return reason code as noted below: