ACH Returns

When an ACH transaction is initiated but cannot be successfully processed, it results in an ACH return. Transactions can return for various reasons, ranging from insufficient funds when a customer account is debited to a customer calling their bank to dispute a payment they don’t recognize. There are 80+ Return Codes each with a different cause and path to resolve.

ACH returns can negatively impact a business through

Financial Losses: this can be caused by fraud losses, lost transaction value from administrative returns, and bank/processor fees assessed for any returned payments
Operational Disruption: Handling ACH returns requires administrative effort, communication with customers, and accounting adjustments
Customer Experience: ACH returns can lead to customer dissatisfaction. When customers experience failed transactions, it can damage their perception of the business
Compliance and Risk: Failure to manage return rates may result in non-compliance with partners and regulators. Excessive returns may trigger scrutiny from NACHA, payment processors, and financial institutions.

Types of Returns

Unauthorized ACH Returns: Unauthorized ACH returns are initiated when a customer or account holder disputes an ACH transaction that they did not authorize or approve.

These returns are typically used for cases of fraud, error, or when a transaction is not in compliance with the account holder's authorization.
Generally, unauthorized ACH returns must be initiated within 60 days from the settlement date of the original ACH entry.
- All other return types are received within 2 business days of the settlement date of the original ACH entry.
Unauthorized Return Codes: R05, R07, R10, R29 and R51.
NACHA limit: 0.5%

Administrative ACH Returns: Administrative ACH returns are initiated for various non-fraudulent reasons other than unauthorized transactions and are usually attributed to account data errors

They are typically used for issues such as incorrect or invalid account numbers
Return Codes: R02, R03 and R04
NACHA limit: 3%

Insufficient Funds (NSF) Returns: As ACH payments are not immediately debited from a customer’s account when they are initiated, “NSF” returns are one of the most common reasons payments return. An NSF return occurs when a customer’s account balance is not enough to cover the requested payment at the time of the transaction.

After an NSF return, the payment can be reattempted up to two times to attempt to try and debit a customer’s account
To mitigate these returns, processors will often require customers to have a balance higher than the transaction amount in order to initiate a payment
The payment risk is higher on days with longer settlement windows (e.g. weekends, holidays)
NOTE: NSF Return Rates are not monitored independently, but these returns are often a key driver of higher Overall Return Rates.
- The Overall Return Rate includes all return codes
- The NACHA limit is 15%

See here for a list of all possible ACH return codes

How to Calculate Return Rates

Unauthorized Return Rate (Limit: 0.5%)

Total # of ACH Debit Transactions where status updated to returned or returned_settled in last 60 Days and reason_code is R05, R07, R10, R29 or R51

Divided By

Total # of ACH Debit Transactions Created in the last 60 Days where status is not canceled, failed, submitted or rejected

Administrative Return Rate (Limit: 3.0%)

Total # of ACH Debit Transactions where status updated to returned or returned_settled in last 60 Days and reason_code is R02, R03, or R04

Divided By

Total # of ACH Debit Transactions Created in the last 60 Days where status is not canceled, failed, submitted or rejected

Overall Return Rate (Limit: 15.0%)

Total # of ACH Debit Transactions where status updated to returned or returned_settled in last 60 Days

Divided By

Total # of ACH Debit Transactions Created in the last 60 Days where status is not canceled, failed, submitted or rejected