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
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.
What happens if my ACH payment is returned? ›
Every time an ACH return happens, the originator will be sent an ACH return code. This code is represented by the letter R and a two-figure number and explains why the return happened. For example, a R01 return code indicates that the client's bank account contains insufficient funds to complete the transfer.
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.
Why is ACH taking money out of my account? ›
Short for “Automated Clearing House,” ACH is an electronic network that handles payments between banks. If you've ever received direct deposit to your checking account from an employer, that's ACH deposit. If you've set up your utility bills to come right out of your account, that's an ACH withdrawal.
Will the IRS resubmit an ACH payment? ›
The IRS doesn't resubmit checks or other commercial payment instruments a second time for payment. When a check or other commercial payment instrument isn't paid, however, the clearinghouse does frequently resubmit it to the bank.
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.
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? ›
Once you notify your bank or credit union about an unauthorized transaction (that is, a charge or withdrawal you didn't make or allow), it generally has ten business days to investigate the issue. The bank or credit union must correct an error within one business day after determining that an error has occurred.
Can an ACH go through with insufficient funds? ›
Even after an ACH payment is processed, the sender may receive a payment rejection code later. Such transactions can fail due to multiple reasons. However, the most common reasons why they fail include: Insufficient Funds: In this case, the sender of funds does not have enough balance in their bank account.
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.
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.
Can ACH payments be declined? ›
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.
Why was my ACH reversed? ›
ACH Reversals
The following ACH transfers qualify as an erroneous entry: A duplicate of an entry previously initiated by the Originator. Payment to or from a Receiver different than the Receiver intended to be credited or debited by the Originator. Payment in an amount different than was intended by the Originator.
How do I stop unauthorized ACH withdrawal? ›
Tell your bank or credit union right away if you see a payment that you did not allow (authorize) or a payment that was made after you revoked authorization. Federal law gives you the right to dispute and get your money back for any unauthorized transfers from your account, as long as you tell your bank in time.
Can ACH payments be traced? ›
In every transfer through the Automated Clearing House (ACH) Network, a distinctive reference number, known as the ACH number or a Tracer number, is assigned. This Tracer number or also known as ACH trace number acts as a vital tool for tracking funds and identifying their location within any given banking institution.
How long do you have to recall an ACH payment? ›
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.
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? ›
Refunds involve the reversal of a payment after a transaction has been completed. It is usually carried out because the customer is unsatisfied in some way with the item or service they received. A refund is initiated by a customer in direct communication with the vendor.
