ACH Rejects and Processing Explained

ACH stands for Automated Clearing House, a network managed by NACHA. The network enables the electronic transfer of funds from one bank to another by directly debiting a consumer or business checking or savings account. It is commonly used for payroll, bills and invoices, and tax payments. ACH transaction fees are lower than those of credit and debit cards, so it is a popular cost-effective payment type, especially for higher ticket purchases.

However, the rules surrounding ACH payment processing can be difficult to understand, and ACH transactions carry additional risk, which can lead to write-offs and fees. Let’s take a closer look. 

Processing ACH

To process ACH transactions, you simply enter the customer's routing and account numbers and run the transaction. From there, the customer's account is debited and your business receives its funds the next day.

To reduce risk, select a Virtual Terminal that allows you to collect a signature for both in-person and remote ACH payments.

If you have a Virtual Terminal that securely stores customer payment details, you only need to key in the account information once. So the next time your customer wants to make a payment, all you have to do is simply pull up her information and charge the account with one click. Credit card and checking account details should be tokenized to protect sensitive information.

ACH Rejects and Notifications of Change (NOCs)

Unlike credit cards, ACH transactions act more like checks and are not authorized in real-time, which means transactions can be rejected (similar to a bounced check) and you could be left with costly write-offs unless you take action.

The network provides status codes when an ACH transaction is rejected. An ACH reject can occur for a number of reasons. For example, the bank account may be frozen or lack sufficient funds to cover the transaction.

There are a few ways to handle ACH rejects and, depending on the reason, some transactions may be corrected, resubmitted, and approved. If payments are unsuccessful, you are usually notified within two to four business days of the transaction (much quicker than the five to 10 days it takes with paper checks).

4 Common Reasons for ACH Rejects

If you receive a Notification of Change (NOC) rejection, it is important to take immediate action. A NOC means there was a change regarding the bank account you are trying to debit. Most Merchant Account Providers charge an ACH account number reject fee for every NOC you encounter. If you fail to update the information, most providers will charge an ACH reject fee every time the transaction is attempted. Some of the steps to remedy a reject can be automated, while others may require outreach to the customer to obtain updated information.

The most common ACH reject reasons include:

1. “R01 Insufficient Funds”
2. “R02 Bank account closed”
3. “R03 No bank account/unable to locate account”
4. “R29 Corporate customer advises not authorized”

It is highly likely that at some point, you’ll encounter an ACH reject fee. In addition to familiarizing yourself with these common reject codes so you can quickly resolve the next reject you encounter, you should make sure your ACH processing system is helping you as much as possible. Working with a processing system that helps streamline fixes instead of slowing you down will only improve your operations, cash flow and customer relationships.

Reap the Benefits

When managed properly, ACH is a money saver. ACH payments have lower transaction fees versus credit card transactions. So when it comes to accepting large payments, you can use ACH for efficient and lower-cost processing.

What other questions do you have about ACH? Tell us below!