TABLE OF CONTENTS
In today’s world, so much of business is conducted electronically. In the electronic payments space, Automatic Clearing House (ACH) payments are becoming increasingly popular, with 29.1 billion payments valued at $72.6 trillion in just 2021.[1]NACHA. “The economy moves through ACH“. Accessed March 22, 2022. As these payments become more common, business owners should know the ins and outs of ACH payments. And one of the most important, yet frustrating elements of ACH payment processing is the event of a payment return. Below explores this subject, specifically diving into the event of ACH return code R31.
What is an ACH payment?
Facilitated through the ACH Network, an ACH payment is an electronic funds transfer from one U.S. banking institution to another U.S. banking institution.
ACH payments refer exclusively to computer-based electronic transfers, not physical transactions. These payments are particularly common amongst business-to-business transactions.
What is an ACH return code?
ACH return codes appear to merchants when an ACH payment results in a return. The three-character code communicates to the merchant the reason for the payment rejection. Standing for return, “R” is always the first character of the return code. A two-digit number follows the “R.” This number specifies the potential reason for the payment return. The return code not only points to the potential payment problem but also signals exactly how to handle the return.
ACH return codes allow financial institutions to properly communicate issues, in turn, hopefully resolving underlying issues promptly.
NACHA
As the ACH Network’s governing body, the National Automatic Clearing House Association (NACHA) designates different guidelines for handling each ACH return code. This makes sense, as each code communicates a different problem.
ODFIs and RDFIs
Originating Depository Financial Institutions (ODFIs) are the banks responsible for initiating the payment, meanwhile Receiving Depository Financial Institutions (RDFIs) are the banks executing the payment to ODFIs.
You should note that this doesn’t mean the ODFI receives funds in every ACH transaction. When an ODFI initiates a refund, the RDFI receives funds from the ODFI.
It’s also worth noting that banks in the ACH Network operate as both ODFIs and RDFIs. Their role simply changes depending on if their member is on the initiating or receiving end of an ACH transaction.
What Does ACH Return Code R31 Mean?
Less common among return codes, ACH return code R31 appears when an RDFI seeks to return a CCD or CTX entry.
Cash Concentration or Disbursement (CCD) entry refers to a payment format regarding corporate credits and debits. This format provides quick and secure transfers that can secure funds overnight. CCD format strictly serves payment amounts.
Corporate Trade Exchange (CTX) refers to a format that involves additional records providing further information on the transactions.
In the circumstance of ACH return code R31, the ODFI must give the RDFI permission to return if the request comes after the return deadline of two banking days.
Formal definition
ACH return code R31 is defined as, “Permissible Return (CCD and CTX only).” A non-consumer-related return code, ACH return code R31’s correctional timeline is undefined.
Solutions to Fix R31 Return Code
If you receive ACH return code R31, contact your customer at your earliest opportunity. You need to obtain authorization from your customer to debit or credit another bank account (if they have another bank account). You may also request an entirely different form of payment from your customer.
Final Thoughts
While receiving a return code, such as ACH return code R31, may be frustrating, the underlying issues for returns are usually easy to solve. And there are so many reasons for businesses to adopt ACH payment processing, including lower transaction fees and a reduction in chargebacks.
With the rare occurrence of returns being so manageable, it’s worth reaching out to a merchant service provider to see how accepting ACH payments could benefit your business.
