What happens if an ACH payment is returned

Insufficient funds

• ACH return code: R01.

• Why this happens: Your customer tries to transfer more money than they have in their account.

• What to do about it: Contact your customer. Maybe they made a mistake (say, added an additional digit or didn’t pay attention to their cash flow). Maybe they thought they had the money, but their own customers didn’t pay when planned. They can try the transaction again in two days, or you can work together to find a different payment method.

Account closed

• ACH return code: R02.

• Why this happens: You’re charging an account that no longer exists. This could happen because a customer gave you the wrong account number, or maybe it’s a recurring payment and your customer forgot to inform you that they changed accounts.

• What to do about it: The best advice is almost always communication, so here, too, contact your customer. Ask for updated account information or offer additional ways to pay. If they still want to make an ACH payment, they can try again two days after the attempt that didn’t work.

Stop payment order

• ACH return code: R08.

• Why this happens: Your customer asked to stop all payments to your account. Perhaps they provided long term access to their account through an ACH withdrawal, and are now reviewing their expenses and making some changes. This could happen because of their own financial challenges or because they’ve decided to move on from being your customer.

• What to do about it: Customer turnover is common, but it doesn’t mean you necessarily need to just forget about it and move on, especially if this was a meaningful customer. Try contacting them to find out what happened. Perhaps you can fix the situation, or give them a free gift card for the next time they want to give you a try. If they want to transfer the money again via ACH, they can do it starting two days after they stopped the payment. Even if this doesn’t work, they might be able to give you valuable feedback, which you can use to make your business serve your other customers even better.

Unauthorized transaction

• ACH return code: R10.

• Why this happens: You’re no longer authorized to charge this account. As in the previous code, this could be a mistake or it could be intentional, but in R10, it can also mean a fraudulent transaction.

• What to do about it: If this is a recurring customer, stop recurring or future payments right away. If it’s a customer you know well, consider contacting them, as there might be a mistake. Otherwise, whether there’s a risk that your customer is committing fraud (they’re using someone else’s financial information to buy from you) or accusing you of fraud (for example, if they say they never gave you permission to charge their account), we recommend consulting an attorney.

Other reasons

There are more than 80 reasons that ACH payments get returned. We covered them all in another article, including each reason’s accompanying code, what the reason means, what you can do about it, and what’s your timeframe to take action.

It’s a free, ungated resource to keep handy for when you need to quickly understand the ACH return codes showing up in your system.

Delayed payments

Needless to say, getting a returned mobile ACH payment notification isn’t pleasant. If your customers’ ACH payments get returned, your own cash flow gets hurt. Your ability to pay your employees and suppliers, pay your bills and taxes, or take home a salary yourself, as the business owner, to support your own family, decreases.

If this keeps happening, the lack of reliable payments and cash flow can also hurt potential investment and expansion opportunities, as the financial ground won’t be solid enough to grow.

Fees and penalties

Returns create more work for your bank, so you might be facing return handling fees. You might be able to hand off these fees to your customer, if she or he caused the return, but this isn’t something to count on.

The fee is $2-5 per returned payment, but it can easily accumulate if this keeps happening.

Moreover, you need to keep your ACH return rates below 15% for every 60 days. Nacha, the organization that manages ACH payments, might deny your business the option to keep accepting ACH payments if you surpass this rate.

Damaged business reputation

If your business gets accused of fraud, or trying to make unauthorized charges, that’s a reputation crisis. Losing the ability to accept ACH payments could also signify to your customers that something problematic is going on.

It could be perceived this way even if you simply came across some really bad coincidences or you realized you hired the wrong person to handle payments, despite your business intention to always serve customers well.

But it can even be simpler than that. If customers trust your ethical intentions, but find it hard to do business with you because they keep needing to spend additional time on payment logistics, they might start looking elsewhere. It’s a lose-lose situation that’s best dealt with as soon as possible.

Legal consequences

Depending on how severe your ACH return rate is, or for what reasons payments get returned, there could be legal and regulatory consequences.

If you see that this might become an issue, we highly recommend consulting with an attorney and getting ahead of it before it escalates.

Verify account information

Always double check account information when it’s your time to insert it or review it before a final charge, and encourage customers to do the same.

Implement risk management strategies

Combine machine and human intelligence to manage the risk that comes with receiving ACH payments (or any payments, really). Use data verification and validation tools for customer and account information accuracy.

Simultaneously, educate your customers on best payment practices, including the fees and penalties that mistakes might lead to. Offer advice carefully, maybe as an added resource, or more directly if you see a customer who’s struggling or repeating the same issue again.

Educate employees

Educate your own employees on best payment practices, too. Teach them how to monitor and analyze return rates, plus how to handle refunds.

When handling refunds, train them how to retain customers in a way that actually makes them want to stay with your business (provide resolution to their issue, accommodate their needs when possible, or offer a free gift card to try your business again when they’re ready). Plus, teach them how to get customer feedback, so you can improve your overall customer relations regardless of whether this specific customer remains.

Then include this information as you teach empathetic and efficient customer service to get more customers to stay with you for the long haul.

Consider alternative payment methods

Thankfully, we live in the age with many business payment options. If ACH payments are giving you or your customers too much trouble, offer additional options to pay for your products and services.

If your customers insist on paying via ACH, but you now prefer—or have—to use a different method, use a third party platform like Melio. With Melio, you no longer need to analyze ACH vs. wire transfer, or any other payment method, to try to figure out what can simultaneously work best for you and your customer. Melio lets your customers pay however they prefer, then converts the payment to your preferred way of receiving money.

Simplify ACH payments and boost financial control

ACH payments have plenty of benefits, including how payment details remain secure and payments transfer quickly.

When you use Melio, your customers can pay in batches, split the bill into different installments, and set up recurring payments. And, as mentioned above, whichever party prefers to pay or gets paid via ACH gets to do so, even if the other prefers a different method.

Either way, payment information remains secure, and you can easily track and analyze payment operations to ensure everything runs smoothly—or to catch a challenge before it escalates. Try it here.