Most Common ACH Return Codes

If your business uses the ACH system to handle any of its payments, then you need to be familiar with the most common Automated Clearing House codes. There are dozens of them, but just being aware of the 15 most frequent ones is a smart way to arm yourself against system glitches and payment snafus that sometimes result in extra fees and penalties.

The National Automated Clearing House Association (NACHA) oversees the governance, operation, and management of the entire payment network the comprises the ACH. Their job is vital because all data and money that moves among merchants, customers, and banks in the U.S. is part of the ACH network. NACHA is fully funded by the banks and financial institutions that are part of the vast framework of economic activity in the U.S. retail market.

When an electronic payment via credit or debit card doesn’t go through, your monthly statement will show a “chargeback.” On a merchant level, it’s pretty much the same thing as when an individual has a check returned for insufficient funds or some other reason. There are all sorts of causes for chargebacks. Sometimes they’re the fault of the bank, the customer, a third-party fraudster, human error, or something else.

Your responsibility as a merchant is to know what the common types of chargebacks are, understand how to prevent them, and have a system in place so you can respond correctly and effectively when you spot a chargeback on your statement. Why should you care? Because too many chargebacks can lead to fines or worse.

Some merchants have even been banned from accepting particular cards, which can mean a big dent in profits. The ACH network offers convenience, fast processing, and inexpensive transactions.

Outline of What You Need To Know

In short, every merchant should know four things about ACH chargebacks, namely:

  • The 15 most common codes that show up on statements There are way more than 15 codes, but the most frequent 15 probably account for about 95 percent of what you’ll come across in your career as a merchant.
  • What to do if you see one or more codes on your statement You need to be able to take action when and if a code appears on your account detail. There are several tactics for rapidly addressing any situation.
  • How to avoid charges that don’t go through the first time Preventive maintenance works for cars and dentistry, and it works for merchant financial issues as well. It’s essential to know how to minimize chargebacks as you go about your daily business operations.
  • Why the codes are important Each code represents key information about the reasons a charge did not successfully go through. For merchants who have been processing ACH transactions regularly, they get into the habit of opening their monthly statements and immediately scanning for ACH codes. Immediate action is called for because the presence of an ACH code means that funds are “stuck” somewhere in the system and you could be blamed for the snafu if you don’t address the problem expeditiously.

Why It’s Important To Avoid Returns

Your entire ACH processing system could be shut down if NACHA thinks you are abusing the system or getting too many chargebacks that could be prevented. How do you lose out when you regularly see codes on your statement? Here are a few of the problems that await merchants who get lots of chargebacks:

  • The chance of exceeding NACHA’s acceptable level of returns
  • Possible loss of customers or decreased customer satisfaction
  • Lost revenue and profits
  • Excessive return fees charged by your payment processor

The “Big 15” ACH Return Codes You Need To Know

Of the codes listed below, note that some require more attention than others. That’s because codes 5, 7, 10, 29, and 51 can expose you to higher fees from whichever processor you use. They are classified as “chargebacks” rather than just “returns.” Also, keep in mind that every code adds to your “merchant return rate,” so it’s a good idea to avoid any code. Whenever a customer informs their bank that they did not authorize the specific payment, you’ll see a chargeback code on your statement. Customers who notify banks of unauthorized payments usually get a refund into their account immediately. After that, the banks turn to you to refund them. Here are the 15 codes to watch for:

  • R01 Insufficient funds
  • R02 Account closed
  • R03 No account exists, or unable to locate account
  • R04 The account number is invalid
  • R05 Structure of the account number is not valid
  • R06 Returned per request by customer’s bank
  • R07 Original authorization has been revoked
  • R08 Payment stopped
  • R09 Funds in account are not yet available for payment
  • R10 Customer says the account was used by an ineligible person
  • R14 Account holder is deceased
  • R16 The account has been frozen
  • R20 The account is not set up for transactions (usually means it’s a savings account)
  • R29 “Corporate not authorized” means the merchant told their bank that the transaction was not authorized
  • R51 “RCK,” which means “represented check entries,” is essentially a bad check

Swinging Into Action When You Get an ACH Return

After you do everything in your power to prevent seeing ACH return codes on statements, you still need a way to respond when one shows up. Invariably, your first action should be to get in touch with the customer. This is especially effective when the problem is connected to incorrect account numbers or insufficient funds. Often, when you are pro-active in such a way, it’s possible to remedy the situation quickly by simply processing the transaction a second time.

Don’t forget to make a note of the specific code first. Sometimes the obstacle is related to a bank-originated issue that the customer knows nothing about. If that happens, either you or the customer should contact the financial institution and try to find out the source of the trouble. It’s possible you’ll also need to have a talk with the service company that does your ACH processing to see if there’s a blockage problem on their end.

The bottom line is to stay informed, examine statements carefully, and work to resolve chargebacks as quickly as possible.

Thinking Ahead

For merchants, there’s no guaranteed way to prevent getting at least a few chargebacks from time to time. That’s because you can’t control every action you customers take. Of course, as noted above, there’s plenty you can do to minimize the occurrence of chargebacks. Just as people take good care of their health to prevent illness, it’s wise to engage in preventive tactics to avoid problems down the road.

The most effective route is staying informed about laws, knowing the common codes that might appear on your monthly statements, and having a battle-ready response protocol in place so you can take action the second a chargeback arises.

At Metro Payment Technologies, we help merchants stay prepared by offering them a wide array of services and products, including the very best payment terminals in the industry, e-commerce solutions for businesses of all sizes, payroll support, PCI compliance help, and, of course, chargeback handling services that get the job done.

Feel free to call us at 1-800-771-3719 or contact us via email at whenever you need assistance. In the meantime, check out our website to learn more about how we can help you become a more profitable merchant.