Like any payment system, ACH transactions can encounter issues. ACH return codes help merchants figure out why a transaction failed and determine the best next steps. Here we’ll cover the ACH return codes and what they mean.
What Are ACH Return Codes?
When an ACH transaction encounters an issue, the receiving bank returns the transaction to the originating bank along with an alphanumeric code that indicates the reason for the return. ACH return codes are maintained by NACHA, who governs the ACH network. NACHA periodically updates the ACH Operating Rules to reflect changes in the payment landscape and to address emerging issues, including return codes.
Impact of ACH Returns
ACH returns can have a significant impact on a business.
- Cash flow disruption. When ACH transactions fail due to insufficient funds or uncleared deposits, it can affect a business’s ability to pay suppliers, meet payroll, or manage daily operations.
- Additional administrative work. Dealing with ACH return codes requires customer communication, troubleshooting, and resolving issues. These tasks can be time-consuming and may divert resources from other essential tasks.
- Reversal fees: Some payment processors may charge a fee for returned ACH transactions. These fees can add up and impact the overall profitability of the business.
- Loss of processing account. Frequent ACH return codes can reflect poorly on a business’s financial management and reliability. Some processors may drop a merchant receives too many ACH returns.
Common ACH Return Codes and Their Meanings
There are more than 80 different ACH return codes, below we cover the 10 most common. Each return code begins with the letter “R” followed by two digits. For instance, R02 indicates the account used for the transaction has been closed.
| Return Code | Error | Description |
|---|---|---|
| R01 | Insufficient Funds | The account’s available balance does not have enough funds to cover the transaction amount. |
| R02 | Account Closed | The account has been closed either by the customer or the recipient’s bank. |
| R03 | No Account/Unable to Locate Account | The specified account doesn’t exist or doesn’t belong to the person named on the transaction. |
| R04 | Invalid Account Number | The account number is invalid. |
| R05 | Unauthorized Debit Entry | The transaction was not authorized by the account holder or was not properly authenticated. |
| R06 | Returned per ODFI’s Request | The transaction was returned at the request of the originating institution. |
| R07 | Authorization Revoked | The account holder revoked the authorization for the transaction. |
| R08 | Payment Stopped | The account holder placed a stop-payment order on the transaction. |
| R09 | Uncollected Funds | The funds in the account are not yet available due to holds or uncollected deposits. |
| R10 | Customer Advises Not Authorized | The account holder claims that the transaction is unauthorized. |
Handling ACH Return Codes
ACH return codes play a key role in dispute resolution by providing clear information about why an ACH transaction failed.There are a few strategies businesses can use to minimize ACH returns. For instance businesses can verify account information and obtain proper customer authorization. Monitoring return codes to identify patterns and address recurring issues can prevent future ACH returns.
- Understand the code. Reference the ACH return list to understand the specific issue that caused the transaction’s failure.
- Retry the transaction. In some cases, for instance with insufficient funds returns, you may be able to resubmit the transaction a limited number of times.
- Communicate with the customer. Inform the customer of the return and request updated information or discuss any issues that may have led to a dispute.
- Suspend recurring payments, when authorization has been revoked. Contact the consumer to have the block removed or request a new debit authorization.
For businesses, return codes help in quickly identifying and addressing the cause of the dispute. Whether it’s due to insufficient funds, incorrect account information, or an unauthorized transaction, knowing the return code enables the business to take appropriate actions to resolve the dispute and prevent similar issues in the future.
Conclusion
ACH return codes are an important part of the ACH payment system as they provide valuable information about failed transactions. Understanding these codes and knowing how to respond to them is crucial for businesses who accept ACH payments. By handling return codes efficiently, businesses can minimize disruptions and maintain consistent cash flow.
