Automated Clearing House (ACH) payments are electronic transactions that transfer funds between bank accounts in the United States. They are commonly used for direct deposit, bill payments, business-to-business (B2B) transactions, and person-to-person payments.

ACH payments are processed through the ACH network, a secure and reliable system operated by the National Automated Clearing House Association (Nacha). In 2023, the ACH network transferred more than $80 trillion. As common as they are, ACH payments sometimes fail. When ACH returns happen, it’s important to understand why they occurred and respond accordingly. This guide explains why ACH returns commonly happen, provides a complete list of ACH return codes, and describes how to reduce ACH payment failures in your business.

What’s in this article?

• What happens when an ACH payment is returned?
  
• Why ACH payment returns happen
  
• A complete list of ACH return codes
  
• How to reduce ACH returns
  

What happens when an ACH payment is returned?

When an ACH transaction can’t be successfully completed, the payment is returned. A return differs slightly from a rejection, which happens when an entry was never accepted into the ACH network for processing. There are several reasons why an ACH payment might be returned or rejected, including insufficient funds in the sender’s account, a closed account, or incorrect account information. Here’s what happens when an ACH payment is returned.

• Bank notification: The receiving bank notifies the originating bank (the sender’s bank) that the ACH payment has been returned. It provides a reason code or description for the return that indicates why the transaction could not be completed.

• Sender notification: The originating bank informs the sender (usually a business or individual) that the ACH payment has been returned, along with the reason provided by the receiving bank.

• Resubmission or correction: Depending on the reason for the return, the sender might need to correct the payment information (such as updating account details) before resubmitting the transaction.

• Reconciliation: The sender reconciles their records to reflect the returned payment and takes any necessary actions to address the situation, such as contacting the recipient to arrange an alternative payment method.

Returned ACH payments can incur fees, which the sender’s bank typically charges to the sender. These fees vary depending on the bank’s policies and the nature of the return.

Why ACH payment returns happen

ACH payments can be returned for several reasons. Here are some of the most common explanations.

Insufficient funds

Example code: R01 (Insufficient Funds)

This occurs when the account from which the payment is being drawn does not have adequate funds to cover the transaction at the time of processing.

Account issues

Example codes: R02 (Account Closed), R03 (No Account/Unable to Locate Account), R04 (Invalid Account Number)

Payments are returned if the account number provided does not exist, corresponds to a closed account, or is invalid. This could be due to input errors, closing accounts, or other administrative discrepancies.

Authorization issues

Example codes: R07 (Authorization Revoked by Customer), R10 (Customer Advises Not Authorized)

These returns happen when the originator does not have proper authorization from the account holder to initiate the debit or if the authorization was revoked after initially being granted.

Stop payments

Example code: R08 (Payment Stopped)

If an account holder places a stop payment order on a particular payment, the ACH debit will be returned.

Administrative errors

Example codes: R05 (Unauthorized Debit to Consumer Account Using Corporate SEC Code), R17 (File Record Edit Criteria)

Errors can occur if the transaction was formatted incorrectly. This could mean a mismatch in payment codes (e.g., applying a corporate transaction code to a consumer account) or other technical errors that violate ACH rules.

Banking errors

Example codes: R13 (Invalid ACH Routing Number), R26 (Mandatory Field Error)

These returns are related to issues with the receiving bank, such as not being qualified to participate in the ACH network or errors in processing required fields in a transaction.

Disputes and fraud

Example codes: R29 (Corporate Customer Advises Not Authorized), R51 (Item Related to RCK Entry [re-presented check] is Ineligible or RCK Entry is Improper)

If an account holder disputes a transaction as unauthorized, potentially indicating fraud or discrepancies in how entries were processed, the transaction may be returned with these codes.

Technical or procedural failures

Example codes: R20 (Non-Transaction Account), R24 (Duplicate Entry)

Payments directed to nontransaction accounts (accounts not allowed to handle automated debits or credits) or duplicate transactions (where the same entry is sent more than once) are also common reasons for ACH returns.

Compliance and legal issues

Example codes: R16 (Account Frozen)

This error code can mean the accounts have been frozen because of legal action or transactions have been halted for regulatory violations.

A complete list of ACH return codes

ACH rejection and return codes encompass a wide range of scenarios from simple administrative errors to more complex issues related to international transactions and compliance. Before we discuss the specific codes, it’s helpful to understand a few key terms:

• Entry: Any ACH transaction submission
  
• IAT: International ACH transaction
  
• ODFI: Originating Depository Financial Institution that sends ACH transactions
  
• RDFI: Receiving Depository Financial Institution that receives ACH transactions
  

Each code provides specific information about why a transaction failed or requires attention. Here’s a list of all the ACH rejection and return codes.

Common codes

R01 - Insufficient Funds
R02 - Account Closed
R03 - No Account/Unable to Locate Account
R04 - Invalid Account Number
R05 - Unauthorized Debit to Consumer Account Using Corporate SEC Code
R06 - Returned per ODFI’s Request
R07 - Authorization Revoked by Customer
R08 - Payment Stopped
R09 - Uncollected Funds
R10 - Customer Advises Not Authorized

Less common codes

R11 - Check Truncation Entry Return
R12 - Branch Sold to Another DFI
R13 - Invalid ACH Routing Number
R14 - Representative Payee Deceased or Unable to Continue in that Capacity
R15 - Beneficiary or Account Holder (Other Than a Representative Payee) Deceased
R16 - Account Frozen
R17 - File Record Edit Criteria
R18 - Improper Effective Entry Date
R19 - Amount Field Error
R20 - Non-Transaction Account
R21 - Invalid Company Identification
R22 - Invalid Individual ID Number
R23 - Credit Entry Refused by Receiver
R24 - Duplicate Entry
R25 - Addenda Error
R26 - Mandatory Field Error
R27 - Trace Number Error
R28 - Routing Number Check Digit Error
R29 - Corporate Customer Advises Not Authorized
R30 - RDFI Not Participant in Check Truncation Program
R31 - Permissible Return Entry (CCD and CTX only)
R32 - RDFI Non-Settlement
R33 - Return of XCK Entry
R34 - Limited Participation DFI
R35 - Return of Improper Debit Entry
R36 - Return of Improper Credit Entry
R37 - Source Document Presented for Payment
R38 - Stop Payment on Source Document
R39 - Improper Source Document
R40 - Return of ENR Entry by Federal Government Agency
R41 - Invalid Transaction Code
R42 - Routing Number/Check Digit Error
R43 - Invalid DFI Account Number
R44 - Invalid Individual ID Number
R45 - Invalid Individual Name
R46 - Invalid Representative Payee Indicator
R47 - Duplicate Enrollment
R50 - State Law Affecting RCK Acceptance
R51 - Item Related to RCK Entry is Ineligible or RCK Entry is Improper
R52 - Stop Payment on Item Related to RCK Entry
R53 - Item and RCK Entry Presented for Payment
R61 - Misrouted Return
R62 - Return of Erroneous or Reversing Debit
R63 - Incorrect Dollar Amount
R64 - Incorrect Individual Identification
R65 - Incorrect Transaction Code
R66 - Incorrect Company Identification
R67 - Duplicate Return
R68 - Untimely Return
R69 - Field Error(s)
R70 - Permissible Return Entry Not Accepted/Return Not Requested by ODFI
R71 - Misrouted Dishonored Return
R72 - Untimely Dishonored Return
R73 - Timely Original Return
R74 - Corrected Return
R75 - Return Not a Duplicate
R76 - No Errors Found
R77 - Non-Acceptance of R62 Dishonored Return

Codes for international transactions

R80 - IAT Entry Coding Errors
R81 - Non-Participant in IAT Program
R82 - Invalid Foreign Receiving DFI Identification
R83 - Foreign Receiving DFI Unable to Settle
R84 - Entry Not Processed by Gateway
R85 - Incorrectly Coded Outbound International Payment

How to reduce ACH returns

Reducing ACH returns can save you money, reduce the administrative burden on your staff, and improve your customers’ experience by minimizing payment delays and addressing frustration with the payment process. It’s a good idea to track your ACH return rates against industry benchmarks and collaborate with other businesses in your sector to share best practices for reducing returns. Make sure you address ACH returns promptly when they do occur and consider implementing automated workflows to categorize and address returns in real time.

Here are some ideas to help reduce ACH returns. Carefully evaluate the cost-effectiveness of these return prevention strategies to make sure you’re balancing investment costs against any potential savings.

• Account verification: Use address verification services (AVS) and Positive Pay to ensure account details match bank records. Consider electronically validating account ownership before initiating debits through microdeposits or instant account verification tools.

• Customer education: Communicate clearly about ACH authorization processes and potential fees associated with insufficient funds or nonauthorized transactions.

• Risk models: Analyze historical return data to identify patterns and create risk scores for new transactions. Consider customer history, transaction size, and industry trends.

• Real-time monitoring: Implement tools that monitor ACH transactions for suspicious activity, such as high-value debits from new accounts.

• Transaction descriptions: Use easy to understand, concise transaction descriptions that accurately reflect the purpose of the payment. Ambiguous descriptions can raise warning signs for customers and lead to returns.

• Prenotifications: When possible, send prenotifications to customers informing them of upcoming ACH transactions, especially for initial debits or recurring payments.

• Customer support: Provide multiple ways for customers to contact support about transactions they don’t recognize or updating their account information.

• Batching strategies: Use batching strategies to submit low-risk transactions together.

• ACH network optimization: Work with your payment processor to explore advanced ACH network optimization strategies. These could include choosing the most suitable routing options or using same-day ACH capabilities to expedite settlements and reduce the risk of insufficient funds.

• Third-party partnerships: Consider partnering with specialized ACH return prevention services that offer advanced data scrubbing and verification capabilities.

• Nacha guidelines compliance: Stay updated on the latest Nacha Operating Rules and best practices for ACH transactions.

• Security measures: Maintain strong security protocols throughout your ACH processing system to minimize the risk of fraudulent transactions and returns.