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If your business processes ACH payments, it’s important to understand how to navigate the ACH reversal rules. The Automated Clearing House (ACH) is a network that manages electronic payments moving from one bank account to another. In 2020, there were 26.8 billion payments processed through the ACH network. Despite this number, the ACH network cannot process transactions from debit or credit cards. They only handle bank-to-bank transfers. And unlike credit cards, it’s much more difficult to reverse an ACH payment. From direct deposits of paychecks to monthly bill payments, ACH payments are a vital part of small and big business. But what happens when an error occurs within these frequent transfers?
The ACH Reversal Rules
ACH payments typically take a few days to process, but the payments are quite manageable. ACH transfers help to prevent any missed or late payments in concerns to recurring bills. While the vast majority of ACH transfers go on without a hitch, from time to time, businesses may need to stop, reverse, or cancel a payment. There are several ACH reversal rules that accompany this process. It’s important to understand these rules so you can prepare for the possibility of your business having to go through the ACH reversal process.
Can an ACH be reversed?
Unlike wire transfers, it’s possible to reverse ACH transfers under the right circumstances. Wire transfers happen almost immediately and the funds leave one account and go to another on the same day. This typically makes the funds available immediately to the beneficiary which makes the money more difficult to recover. ACH payments take more than three business days to appear in their designated bank account. The time of day a business submits an ACH transfer can affect how long the transaction will take as well. This means that if the sender acts quickly, the bank still has time to provide a reversal to the payment.
It’s critical to let the bank know as soon as you detect any irregular payments. The ideal timeframe to notify both the sender or biller’s bank is within two days of the posted ACH transaction. If a bank customer waits more than 60 days after receiving their bank statement to address an error in ACH payment, the customer may be responsible for any monetary losses to their account as the bank will be unable to reverse payment.
Can you stop an ACH payment?
One of the major reasons business owners look up ACH reversal rules is to see if they can stop an ACH payment. Fortunately, ACH users have a legal right to revoke their authorization for an ACH payment. The payment sender can call or write to their biller and request they stop the transfer of their automatic payments. Senders should also inform their bank or credit union by letter of their request to halt payment as well.
If the biller continues to charge the ACH sender’s bank account, it may still be possible to block the transfer. The sender should contact their bank at least three business days before the ACH payment date. Senders can contact their banks via phone or in person, but should also submit the ACH payment stop request in writing within 14 days.
Stopping an ACH payment may come with a modest fee depending on the bank’s specific policies. Additionally, requesting a stop-payment with the sender’s bank does not cancel their contract with the billing company. The sender should still contact the biller, cancel their contract, and request that the biller stop taking payments. Senders should follow up by monitoring their bank account to make sure all of their transfers are correct.
What are the ACH Reversal Requirements?
The National Automated Clearing House Association (NACHA) has rules that tell users what circumstances qualify for a reversal. A customer’s bank can only reverse a payment from their account if:
- The transfer amount was incorrect
- A transfer had an error in either account number, meaning the sender or recipient’s account numbers were incorrect
- There was a duplicate transfer (in which case they will only reverse the duplicates)
- The transfer date was wrong
If one of these errors occurs, the associated bank must reverse the charges within five days and notify the affected account owners of the reversal. Only the payment sender can submit reversal requests and not the payee/biller.
The ACH reversal process
Some of the ACH reversal rules affect certain industries over others. Many businesses choose to pay their bills via ACH transfers and there may be occasions when it is necessary to adjust or delay payments. On these occasions, first and foremost, contact the business or entity that is initiating the payment, whether that be the biller or the business’s bank. If the customer pays the bill automatically each month, the sender should contact the biller for any changes. If the payment is set up through the sender’s own bank’s online billing system then the sender should contact their bank for necessary changes.
In the event that the customer needs to address the error with the bank, the banking customer should provide the name of the biller as well as the payment amount. This ACH reversal request should ideally take place three business days before the scheduled payment date. Depending on the bank, customers may be able to alter payments over the phone or online. Other banks, however, require a written request or submission of a proper form. You should request any changes as soon as possible, regardless of whether or not the sender has addressed the error. Either way, the bank should notify both parties of the change in payment.
How to Change Direct Deposit Information
Though not part of the ACH reversal rules, when it comes to direct deposit, you should address changes to account numbers as soon as possible. The person receiving deposits should contact the depositor to make changes. The payer will need the payee’s new bank account details including the account number and the bank routing number.
Additionally, the payee should ask the payer to delete their previous account information from their billing system. However, the business should delay closing the previous account to prevent any missed payments. The process of changing direct deposit information can take between two to four weeks to complete.
Addressing ACH Fraud Concerns
The fight against ACH fraud should not be taken lightly. Regrettably, federal consumer protection laws do not cover business accounts. This lack of protection against banking errors and fraud means that businesses in particular need to pay extra care to ACH transfers out of their accounts. To reduce and hopefully prevent any potential problems, businesses can ask about the specific problems and services offered by their bank.
Fraud prevention for ACH
Many banks offer fraud prevention solutions to reduce theft such as:
- ACH Blocks: This is one of the most common ways to prevent ACH fraud. An ACH block will not automatically reject any transactions. However, it requires the account owner to authorize each ACH payment before every transfer. This means that while the account may initiate recurring bills automatically, funds will not leave the account until the account owner reviews and approves the transaction.
- One-time authorization: This guard against ACH fraud authorizes one singular transfer by providing identification information as well as the amount of the payment. The bank verifies the transaction according to the information provided and processes the payment but has no authority to approve additional transfers.
- Authorized user lists: If a business pays recurring bills via ACH transfer, the business can provide their bank with a list of pre-authorized parties for transfers. Banking customers can also specify amounts or set limits to these payments. They may also put in place a range of dates for a party to remain on the authorized list. If an entity receives an ACH transaction request from someone outside the preapproved list, the transfer will not go through. The ACH will reject the transfer or place it on hold until the account owner can review the payment.
All of these programs and more may depend on the business owner’s specific bank. Therefore, business owners should address ways of putting protections on ACH transactions in place with their business account’s chosen bank. There is a reason ACH reversal rules exist for businesses. No matter what, you should monitor your business’s ACH payments and banking accounts to reduce or address any errors or fraud. This will also protect the business’s finances.
