Summary: Understanding ACH return reason codes is essential for maintaining a healthy merchant account and ensuring consistent cash flow.
- An ACH return occurs when a receiving bank rejects a transaction due to issues like insufficient funds (R01) or an account closed (R03).
- An ACH reversal is a merchant-initiated pullback.
This ACH return code list breaks down common ACH return reason codes, explains Nacha compliance thresholds, and provides actionable steps to resolve failed payments and avoid costly ACH return charges.
Accepting Automated Clearing House (ACH) payments can provide added convenience to customers during the payment process while increasing revenue for your business. Unfortunately, no payment method is without hurdles.
In the case of ACH payments, the most common hurdle to overcome is understanding and addressing ACH return reason codes.
There are many ways an ACH transaction might get returned. Sometimes it is due to simple human error, and sometimes a more complicated issue arises.
ACH returns cause you to:
- Lose out on revenue
- Rack up ACH return fees with your processor
- Raise your return rate above the levels designated by Nacha
Nacha is the organization that oversees the ACH network. Merchants that exceed acceptable return rate limits risk a forced shut-off (by Nacha) of ACH processing.
What is Nacha?
Nacha governs the ACH Network, the payment system that drives Direct Deposits and Direct payments.
Nacha develops the rules that allow Direct Deposits and ACH bill payments.
Some ACH returns are inevitable, but many can be either minimized or prevented.
Below is a list of some common administrative ACH return codes and uncommon codes (considered by payment processors to be chargebacks).
ACH Return Codes Related to Administrative Failures
- R02 ACH return code: Account Closed
- R03 ACH return code: No Account/Unable to Locate Account - This code can mean that the banking information does not match the customer’s name, or it can indicate that the account number doesn’t correspond to any open account.
- R04 ACH return code: Invalid Account Number - ACH return R04 means there is something wrong with the bank account information, such as an incorrect number of digits in the account number.
ACH Return Codes for
Administrative Failures
R02 – Account Closed
R03 – No Account/Unable to Locate Account
R04 – Invalid Account Number
To reduce the number of administrative codes you receive for your ACH payments, use dual account entry.
This is an option that requires consumers to type their account number twice for ACH bank account verification during online payments. This system setting is a good defense against simple human errors such as typos.
ACH Return Codes Applied to Overall Return Rate
Although any ACH return is going to count toward an overall return rate, these are the most common ACH return reason codes.
- R01 ACH return code: Insufficient Funds - This return code is the most frequent return code seen, and means the consumer did not have enough funds in their account when the ACH transaction was presented to their financial institution.
Unlike credit and debit card payments, ACH transactions are not a real-time payment method. When your employee enters the payment information, there is no way to determine if the required funds are available. You must wait until the payment is batched out and sent into the ACH network. Ultimately, you have to trust that your consumer will have the funds necessary in their account.
- R06 ACH return code: Returned per ODFI Request - Originating Depository Financial Institution (ODFI) has requested Receiving Depository Financial Institution (RDFI) to return the ACH entry.
- R08 ACH return code: Payment Stopped - The receiver of a recurring debit transaction has stopped payment on a specific ACH debit. RDFI should verify the receiver's intent when a request for stop payment is made to ensure this is not intended to be a revocation of the authorization.
- R09 ACH return code: Uncollected Funds - There is enough money in the bank account to cover the transaction being presented, but the money is not yet available. ACH return code R09 refers to the bank account's current balance and available balance.
- R14 ACH return code: Account Holder Deceased - Account holder is deceased.
- R16 ACH return code: Account Frozen - Funds are not available due to a specific action by the RDFI or by legal action.
- R20 ACH return code: Non-Transaction Account - A non-transaction account return reason indicates that the account provided is not set up for transactions, or the transaction type it can perform isn’t the type being attempted. Typically, this is the result of entering a savings account number instead of a checking account number.
ACH Return Codes Applied to the Unauthorized Debit Entries Return Rate
The ACH return codes below are a few that indicate a payment is being blocked. These codes are considered chargebacks and often rack up a higher ACH return charge with your payment processor.
Chargebacks indicate the consumer has told their financial institution they did not authorize an ACH transfer. The financial institution is obligated to immediately return the ACH transaction and refund the money into the consumer’s account.
This might happen if the spouse of the consumer wasn’t aware of the transaction and didn’t recognize it on their bank statement.
Another common reason for an ACH return is if the description on the bank statement doesn’t match your business name.
- R05 ACH return code: Unauthorized Debit to Consumer's Account - Account number structure was not valid. The debit presented used a Corporate SEC code.
- R07 ACH return code: Authorization Revoked - Consumer who had previously authorized ACH debits has revoked their authorization. Funds must be returned no later than 60 days from the settlement date, and the customer must sign an affidavit.
- R10 ACH return code: No Authorization/Customer Says: Not Authorized/Improper/Ineligible - Consumer has advised RDFI that the originator of the transaction is not authorized to debit the account. Funds must be returned no later than 60 days from the settlement date of the original entry, and the customer must sign an affidavit.
- R29 ACH return code: Corporate Not Authorized - RDFI has been notified by the receiver (non-consumer) that the entry was not authorized.
- R51 ACH return code: RCK Entry: Related Item Ineligible/Entry Improper - Item is Ineligible, Notice Not Provided, Signatures Not Genuine, Item Altered, or Amount of RCK Entry not Accurately Obtained From the Item.
ACH Return Codes for
Unauthorized Returns
R05 – Unauthorized Debit to Consumer's Account
R07 – Authorization Revoked
R10 – No Authorization/Customer Says: Not Authorized/Improper/Ineligible
R29 – Corporate Not Authorized
R51 – RCK Entry: Related Item Ineligible/Entry Improper
ACH Returns vs. Reversals: What’s the Difference
Understanding payment terminology is important for clear communication with your customers and to troubleshoot issues with banks and vendors.
- An ACH return is when a payment is rejected by the receiving bank. Each return comes with a corresponding code, so merchants can understand what went wrong.
- An ACH reversal is when the sender or merchant stops a transaction. Reversals are typically used when a transaction was submitted in the wrong amount or using the wrong account information.
ACH Return Rate Thresholds & Compliance
A merchant’s ACH return rate measures the percentage of transactions that are returned. High return rates might indicate fraud, poor business practices, or a high-risk industry. This is why Nacha sets acceptable return rate limits.
In addition to small bank fines per return, exceeding return rate limits can lead to:
- Nacha investigations
- Additional fines up to $500,000 for severe violations
- Losing your ability to process ACH transactions
The 15% Overall Return Rate Limit
The 3% Administrative Return Rate Limit
The 0.5% Unauthorized Return Rate Limit
Unauthorized return codes are the most serious. They indicate either the bank or customer has not authorized or has revoked consent for the transaction.
The limit for this type of return is only 0.5% (measured over a 60 day period), which comes out to about 1 in every 200 debits.
For companies in volation of this limit:
- Immediately compile transaction documentation (such as audit reports or proofs of payment authorization).
- Create and implement a plan to prevent future returns.
Best Practices to Avoid ACH Returns and ACH Return Charges
These types of unauthorized ACH return codes can often be avoided with these simple best practices in place:
- Confirm the description that appears on bank statements matches your business name.
- Be sure to have your payment representatives inform the consumer of how the descriptor will appear on their statement.
- Include a customer service number along with your business name on all payment receipts and communications with the consumer. It is better to have the consumer call you first rather than call their financial institution and revoke their authorization.
- Make sure your customer service phone is answered consistently, and a voicemail is in place identifying your business, your hours of operation, and the best method for contacting your office again.
How to Manage and Resolve ACH Returns
After receiving an ACH return code, the first step your office should take is to contact the customer who made the payment if at all possible. With administrative codes such as insufficient funds or an invalid account number, you may be able to clear up the issue and try to process the payment again.
In the case of a chargeback code, you can narrow down the source by first researching what the ACH code indicates, then speaking to the consumer.
If they are not blocking the payment, that means there is an issue originating from one of the banks being used for the transaction. You or your consumer will need to speak to the bank to clear up what is blocking the payment.
Once the problem is discovered, speak to your payment processor. They will also have to speak to the ACH processing service your office uses to ensure the payment is unblocked in their system as well.
When to Retry a Transaction
According to Nacha, Originators can retry ACH debits up to two times if they are returned for Insufficient funds (R01) or Uncollected Funds (R09).
- Be sure to send in a separate batch and include the description of “RETRY PYMT.”
- Company name, ID, and amount must match the original transaction
- Must occur within 180 days of the original transaction
When to Contact the Customer
Several ACH return reason codes may require you to contact the customer. Here are some examples:
- Reinitiating a “Stop Payment” (ACH R08): You must get a new payment authorization to reinitiate a stopped payment.
- Administrative returns (ACH R03, R04): An ACH transaction cannot be processed without the correct account information. If you receive one of these codes, contact the customer to verify routing and account numbers before reprocessing.
- Unauthorized return codes or Revoked Returns (ACH R05, R07, R10): Reach out to your customer any time you receive an ACH return code related to a disputed transaction or revoked authorization. Find out what happened and get a new signed authorization before reprocessing.
- Reversal: In addition to returns, if you must reverse an ACH entry, it’s important to notify your customer of this action.
Proof of Authorization
NACHA APPROVED REASONS TO DISPUTE A TRANSACTION
- If a charge was never authorized by the account holder or the authorization was revoked.
- If it was processed on a date earlier than authorized.
- If the transaction amount charged differs from the amount authorized.
ACH TRANSACTION TYPES
Getting the correct proof of authorization (POA) for each ACH type your business accepts is important. POAs protect your business so consumers cannot reverse transactions.
Beyond this, POAs are a NACHA requirement and must be followed to continue processing ACH payments.
- PPD: A one-time or recurring business-to-consumer ACH transfer requires a written authorization or "wet" signature.
- TEL: A one-time or recurring ACH transfer taken over the phone requires either a notice before debit or a recorded call. If you enter the email when taking the payment over the phone, PDCflow automatically sends the notice before debit on your behalf.
- WEB: A one-time or recurring ACH processed via a website requires input that validates identity, permission to debit, and revocation language.
- CCD: A one-time or recurring business-to-business ACH payment requires written authorization or a "wet" signature.
Efficiently managing ACH returns is critical for maintaining merchant account stability and consistent revenue. Businesses can take proactive steps to address payment failure with a better understanding of administrative errors, unauthorized return codes, and others.
Merchants can avoid fines and merchant account disruption by adhering to Nacha’s return rate limits, implementing best practices (dual account entry, statement descriptors, ACH Verify).
Understanding these rules will ensure long-term operational success and minimize costly return fees.
Frequently Asked Questions About ACH Returns
Why was my ACH payment returned?
What are ACH return codes?
ACH return codes, such as R01 or R02, are codes used by banks to explain why an ACH transaction could not be successfully processed.
These codes categorize the specific reason for a failure, which can range from common administrative issues like incorrect account numbers to more serious concerns such as unauthorized debits.
Identifying these codes is critical for businesses to maintain compliance, as Nacha monitors return rates to flag potential fraud or poor business practices.
Who charges ACH return fees?
The originating bank may charge a return fee for certain returned ACH transactions. These fees can be anywhere from $2-$35 per return.
To cover this cost, merchants may choose to institute a charge to customers for Insufficient Funds or other avoidable issues.
Why am I being charged an ACH return fee?
Your company is charged an ACH return fee when a transaction you attempted to process fails. This covers the costs it takes for banks to identify processing issues and notify all parties.
Fees also act as a deterrent, so companies process transactions responsibly with as few returns as possible.
Is it legal to charge an ACH return fee?
How can businesses avoid returned payment fees?
Businesses can mitigate ACH returns through a few tactics:
Bank account verification: Tools like PDCflow’s ACH Verify allow merchants to confirm a valid account before processing a payment. This prevents many issues related to administrative returns.
Dual entry fields: When customers must enter account information twice, this makes it easier to catch typing errors that cause administrative returns.
Clear descriptors on statements: Ensure the name that appears on a customer's bank statement matches your business name, so they don't mistake it for fraud and revoke payment authorization.
Consistent communication: Include a customer service number on receipts, confirmation pages, and your website. This way, customers can call you directly before disputing a charge.
How can I set up ACH Payments for my business?
What is an ACH payment gateway?
What ACH return codes are closely monitored?
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- ABOUT THE AUTHOR -
Hannah Huerta, Marketing Specialist
Hannah Huerta is a Marketing Specialist at PDCflow. She creates content for the accounts receivable and payment industry.
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