ACH return codes: What they mean and how to minimize risk | Plaid (2024)

FAQs

What are the risks of ACH returns? ›

Common causes of ACH returns include insufficient funds, incorrect account information, fraud, errors, or if the account owner asks their bank to place a stop payment on the transfer. Similar to bounced checks, there are fees and risks involved in ACH returns.

ACH return codes identify the reason an ACH payment was returned by the recipient's bank. They make it easier for originating and receiving financial institutions to spot and communicate payment failures. Each code begins with 'R' followed by a two digit number.

Conducting an ACH Risk Assessment

Identifying Risks: Evaluate various risk factors, such as transaction volumes, customer types, transaction types, and the institution's overall risk appetite.

Credit risk, as it pertains to ACH origination activities, is defined as the risk that a party to a transaction will be unable to provide the necessary funds for the settlement of that transaction.

R07 indicates that a customer who had previously authorized ACH transactions has since revoked authorization from the originator of the transaction. The originating depository financial institution (ODFI) must return the transaction within 60 calendar days.

ACH codes are widely used in banking procedures. An ACH code stands for Automated Clearing House Code. It is a network used for electronic money transfers and electronic payments. ACH is a method of clearing credit and debit payments, and is quite popular in the US.

R13 – Invalid ACH Routing Number: The Entry contains a Gateway Identification or Receiving DRI Identification that isn't a valid ACH routing number.

What are three payment risks? ›

Payment risk refers to the potential of losses due to a contract default or other payment event such as fraud, security breaches or chargebacks.

A risk factor is a variable that could increase your risk for a disease or infection. Physical activity, stress, and nutrition could all potentially play a role in your risk for developing certain diseases.

Security. Another advantage ACH payments have is that they're more secure than wire transfers and card payments. This is because ACH payments must pass through clearinghouses that enforce strict regulations.

Limitations. One drawback of ACH transfers is that they settle more slowly—it takes up to a few days — which could be an issue for businesses that require quick access to funds. ACH debits might not clear if the payer's account lacks sufficient funds, leading to delayed payments and potential fees.

ACH transfers are a bit safer for senders. Unlike most wire transfers, funds can be reversed in cases of fraud or payment error. The criteria for reversals is usually determined by banks. Wire transfers have little disadvantage for the recipient.

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.

Security. Another advantage ACH payments have is that they're more secure than wire transfers and card payments. This is because ACH payments must pass through clearinghouses that enforce strict regulations. Money is transferred directly between accounts, with account numbers kept confidential.

Error: If the ACH payment includes incorrect information, such as an incorrect payment or incorrect account information, the bank may reverse the transaction. Stop Payment Request: If the account holder places a stop payment on the ACH transaction before it goes through, the bank may reverse the payment.