Today, the majority of Americans are familiar with ACH payments.
Sometimes, for various reasons, ACH payments get reversed or sent back to their bank of origin.
For example, there could have been an error with ACH payment processing for a small business, or it could have been related to a lack of funds.
In this blog we’ll discuss when (and how) banks can reverse ACH payments, and how to avoid this outcome.
Can Banks Reverse ACH Payments?
Yes. Banks can reverse ACH payments under certain circ*mstances. This process is known as an ACH return or ACH reversal.
Still, just because banks can reverse ACH transactions doesn’t mean they always will. It’s important to know that banks have to follow strict procedures and adhere to strict timelines when reversing ACH payments.
In most cases, the bank must also notify the account holder that they’re reversing the payment, and provide a reason for the reversal. In some cases, account holders can dispute a reversal they disagree with. If you ever have concerns or questions about a specific ACH reversal, reach out to your bank directly.
Why Would a Bank Reverse an ACH Payment?
Here are some of the most common reasons a bank would reverse an ACH payment:
- Insufficient Funds: If there are not enough funds in an account to cover the ACh payment, the bank may reverse the transaction preemptively.
- Fraud: If the bank suspects fraud or other unauthorized activity in a financial transaction, they may reverse the ACH payment.
- 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.
Why Would a Sender Reverse an ACH Payment?
Senders can also reverse an ACH payment. This is typically known as a “stop payment.” The reasons a sender may wish to reverse a payment are generally the same as listed above–there’s been an error.
Other reasons for reversals include disputes between the sender and receiver. Whatever the reason, if a sender wishes to reverse an ACH payment, they have roughly twenty-four to forty-eight hours to initiate the stop. In many cases, the sender may even stop an ACH payment online.
After that time frame, the funds may have already been deposited and cleared. If an ACH payment is cleared into the receiver’s account, it may not be reversed. However, with evidence and an investigation, the bank may return the money via a separate transaction if fraud or other valid reason is discovered.
Consequences of ACH Reversal
Depending on your bank, the sending bank may recoup a fee from the sender when an ACH payment is returned. This is because banks pay to use the ACH system, and reversing payments causes a lot of extra work.
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.
FAQs
If an ACH payment is cleared into the receiver's account, it may not be reversed. However, with evidence and an investigation, the bank may return the money via a separate transaction if fraud or other valid reason is discovered.
Can an ACH payment be reversed? ›
The electronic Automated Clearing House (ACH) network facilitates everything from monthly bill payments to direct deposits for paychecks. Account holders and merchants who encounter issues with ACH payments can stop or reverse them, unlike wire transfers which are usually irreversible.
Can an ACH payment be disputed? ›
An ACH dispute can occur when the buyer questions the transaction and requests that their bank reverses the debit. An ACH transaction may be returned for several reasons, but the most common are: Transaction was not authorized.
Can ACH payments be returned? ›
What is it? An Automated Clearing House (ACH) return is the equivalent of a bounced check. An ACH return occurs when a registrant provides bank information in order to make a payment; however, the payment is returned by the bank for one of many reasons, the most common of which include: Insufficient funds.
What happens if an ACH payment is rejected? ›
Your bank will reject the ACH payment if you entered incorrect payment information. Log into your account and submit your payment again with the correct information. If the payment is returned for insufficient funds in the account, the department will charge a non-sufficient funds fee.
How does ACH reversal work? ›
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.
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.
How long does an ACH reversal take? ›
While the ACH reversal timeframe can vary, it typically takes a few business days for a reversal to be complete. The ACH reversal process can fluctuate depending on the policies and procedures of the financial institutions involved and may be impacted by weekends and holidays.
How long do I have to dispute an ACH transaction? ›
How long do my customers have to dispute an ACH transaction? Customers have between 90 and 120 days to challenge a dispute once an ACH transaction has taken place.
What is the 60 day rule for ACH? ›
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. (In contrast, businesses have only 2 days to request a return.)
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.
How many times can an ACH be returned? ›
You may re-initiate a debit entry up to two times if you receive a return entry of “NSF or Uncollected Funds.” This gives the Originator a total of three attempts at debiting an account. A “Stop Payment” return may be re-initiated only if you receive approval from the payee to re-send the item.
Why would a bank reject an ACH payment? ›
Financial issues
Insufficient funds: One of the more straightforward reasons for an ACH rejection is a lack of funds in the account that's being debited. This will trigger an R01 code. Uncollected funds: Funds may be present in an account but are not yet cleared or collected, leading to an R09 rejection code.
Will an ACH go through with insufficient funds? ›
There are almost 80 defined reasons why an ACH return may take place, with the most common being insufficient funds, incorrect details, or a lack of authorization.
How long do you have to cancel an ACH transfer? ›
If you want to stop an ACH payment, you'll need to contact your bank at least three days before the ACH transfer's date. This may involve an ACH payment stop request submitted in writing within a 14-day time frame. A small fee may be involved in halting the payment.
How long do I have to dispute an ACH? ›
Depending on the ACH type, customers may have up to 90 days from the processing date to dispute a transaction, and some banks extend this window to 120 days. This prolonged dispute period necessitates proactive risk management strategies for merchants.
How long do you have to return an ACH? ›
Customer-initiated return codes are sent when the customer takes action to cancel or revoke an ACH transaction from their account. Depending on the reason for the return, customers may have up to 60 days from settlement to refute an ACH payment.
How do I reverse an ACH file? ›
ACH Reversal Requirements
Transmit the reversing file within 24 hours of discovering the error. Make a reasonable attempt to notify the receiver of the reversing entry and the reason for the reversing entry no later than the settlement date of the reversing entry. Reverse the entire amount of the entry.
