Even if the sender thought they validated and verified all information before initiating the payment, the reality is that sometimes payment errors happen—from minor discrepancies in amounts to transactions sent to the wrong recipient.
While reversing an ACH payment is slightly easier than other payment rails, like wire transfers for example, it’s important that individuals and businesses take every preventative measure to avoid this situation. When individuals or businesses request ACH reversals too often, banks begin to question their trustworthiness in the payment space. In other words, ACH reversals should be used scarcely—reserved for emergency situations.
What information is necessary to submit an ACH reversal?
The National Automated Clearing House Association (NACHA) is responsible for the rules and regulations surrounding ACH payments and reversals. The rules can be strict, but offer important guidelines for merchants who need to submit a reversal. First, the reversal must be sent to the bank within 24 hours of noticing the error and no later than 5 banking days after settlement. Then the payment originator must also reach out to the payment recipient to inform them a reversal is in progress. Finally, the reversal must be initiated for one of the following five reasons:
- Duplicate payment
- Incorrect payment recipient
- Incorrect payment amount
- Payment date earlier than intended (ACH debit only)
- Payment date later than intended (ACH credit only)
Companies that use ACH payments should stay attentive to NACHA’s guidance on reversals, as they recently updated their rules to include new penalties for violations.
What is an example of an ACH reversal in action?
Imagine this: it’s 6:01 pm and ACH payment processing just wrapped up. You suddenly realize your business, Cheddar, sent another company, Fondue, the wrong amount of money. Or you accidentally sent the payment to a company called Fountain by mistake. Or you sent it twice.
As soon as the payment originator realizes the error, the reversal process usually starts by emailing the recipient to alert them of the error and then contacting the bank to fill out a “Reversal Request” form as soon as possible. It’s crucial that you act quickly, considering the reversal must be sent to the bank within 24 hours of noticing the error and no later than 5 banking days after settlement. If the reversal is accepted, the reversed transaction is reconciled, and the funds are transferred back to the originator.
What are the origins of ACH reversals?
The history of ACH reversals begins with ACH payments and the founding of NACHA. Long before electronic payments, money used to move through banks via paper checks. Clearing houses were physical locations where bankers would gather at the end of the business day to collect checks and “clear” them, ensuring money was accounted for accurately. Over time, large volumes of paper checks became difficult to track and banks were eager for a more efficient solution.
In the early 1970s, a number of check clearing houses banded together in partnership with the federal government to build an automated payment method that could be used nationwide. With a regulated, national network of automated clearing houses, U.S. citizens and businesses could buy goods, get paid, and send payments with greater ease and efficiency. In 1974, NACHA was founded to regulate the ACH system as it still does today. Now, NACHA is still responsible for the rules that dictate ACH payments and reversals.
New technology and growing demand for convenience and efficiency are transforming how money moves—and how companies manage it. Today, ACH reversals can now be automated or built into existing operational tools using APIs.
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FAQs
A merchant can reverse an ACH payment under certain circ*mstances. The National Automated Clearing House Association (NACHA) have strict ACH reversal rules. Reversals must occur within five business days of the transaction, and only three situations qualify for approval.
What happens if my ACH payment is returned? ›
Similar to bounced checks, there are fees and risks involved in ACH returns. For starters, ACH returns typically cost between $2 and $5, depending on the ACH processor. An end user may incur fees from their bank if an ACH transaction is returned due to insufficient funds or results in an overdraft to the bank account.
What is the NACHA rule on reversal? ›
A Reversing Entry will be considered improper if it is transmitted (a) for any reason other than those explicitly permissible under the rules; (b) due to the failure of an Originator or any Third-Party Sender to provide funding for the original entry; or (c) beyond the time frame permissible under the rules.
Can you get a refund on an ACH payment? ›
The customer requests the return via a written statement to the bank, which may refer to more than one unauthorized debit payment. Under the ACH rules, the customer's bank is obliged to refund the debits without question, as long as the request was received within 60 days from the NACHA transaction date.
Is it possible to cancel an ACH payment? ›
While some banks will be able to cancel an ACH payment over the phone or online, others may require you to submit a form requesting the cancellation. Recurring ACH debit payments are able to be cancelled, but you must do so at least three business days before the payment is due.
Can ACH payments be disputed? ›
Customers can dispute ACH payments for reasons such as incorrect or duplicate transaction amounts and fraud. If the bank decides the customer's dispute is legitimate, they will reverse the transfer.
How many times can a company retry an ACH payment? ›
R01 – Insufficient Funds: The originator does not have enough money in their account to cover the ACH transfer. The receiver can retry it up to two times, as a new transaction, within 30 days of the original authorization date. R02 – Account Closed: The account is no longer active. The transfer cannot be retried.
How long does a bank have to reverse a payment? ›
First, the reversal must be sent to the bank within 24 hours of noticing the error and no later than 5 banking days after settlement. Then the payment originator must also reach out to the payment recipient to inform them a reversal is in progress.
Can an ACH go through with insufficient funds? ›
The only hiccup you may encounter with ACH payments are “bounced” transfers, due to insufficient funds in your customer's account. Just as with paper checks, ACH transactions can't go through unless there is enough money in the payer's account.
What is the 5 day rule for ACH? ›
A dishonored return must be transmitted within five banking days of the settlement date of the return. Please be aware that the RDFI is able to contest a dishonored return, in which case recovery of the funds would need to happen outside of the ACH Network.
All parties involved in an ACH transfer, excluding consumers, will be required to monitor the transactions, the release said. The rules also empower the receiving bank to return a suspicious transaction without waiting for a request or customer claim.
What is the difference between refund and reversal? ›
In a refund, the merchant returns the money to the customer's account, and the transaction is considered completed. In a reversal transaction, the bank or payment processor cancels the transaction, and the funds are not transferred from the customer's account to the merchant's account.
What happens when an ACH is reversed? ›
Consequences of ACH Reversal
The fee may be a flat dollar amount, though in some cases, banks have been known to charge a percentage of the amount sent. In addition, you may be able to get the fee reversed if you have a valid reason or it can be proven that it was the bank's error that caused the reversal.
Why would an ACH payment be returned? ›
There are a broad range of reasons for returned ACH payments, including insufficient funds, revoked authorization, or an invalid account number.
Can a ACH payment be withdrawn? ›
A withdrawal request with transaction details is submitted to the customer's bank. They pass on the customer's account information and verification that a withdrawal is authorized. The bank adds the ACH withdrawal to the queue. The ACH network contains a queue of ACH transactions cleared out regularly on business days.
How long do I have to dispute an ACH? ›
On average, consumers have up to 60 days to issue an ACH return. These return reasons include: ACH Unauthorized: The specific transaction is not authorized by the buyer's bank. ACH Insufficient Funds: The available cash balance is not sufficient to cover the amount of the debit.
Can payment be reversed once paid? ›
Depending on the type, payment reversals may be initiated by the customer, the merchant, the card network, the issuing bank, or the acquiring bank. While a payment reversal might never be desirable, they're not all equally bad for the merchant.
Can a bank reverse a payment after it has posted? ›
Yes, in some cases a bank can reverse a payment after it has been posted.
