ACH Return CodesWhat Can Those Three Little Characters Tell You?

What are ACH Return Codes? How Do You Avoid Losing Money Due to ACH Returns?

A lot of consumers (and even some merchants) have never heard of an automated clearinghouse, or ACH. Regardless, they probably still use one every single day.

Direct deposit of a paycheck? That goes through ACH. Paying bills online using your bank account? That goes through ACH. Merchants can even use ACH as a way of paying vendors.

It’s a great service.. but there’s still the potential for something to go wrong.

For instance, what if a customer’s payment gets returned? How does the merchant know, and how do they figure out why it happened?

What is an ACH Return?

ACH transfers are a digital method of moving money between banks, credit unions,  and other financial institutions, primarily within the US and its territories. The National Automated Clearinghouse Association (NACHA) oversees the ACH network, and reports that some 30 billion payments were processed through the network in 2022. However, not all of these transactions will ultimately be completed.

If a transaction fails to process, one of the banks involved in the process may receive an ACH return. This is a way of informing the institution that the amount in question either could not be collected from, or deposited into, the appropriate account. 

An ACH return is a message, typically sent by an RDFI, that informs an ODFI that the ACH Network either couldn’t collect funds, or couldn’t deposit funds, into the receiver’s account.

You can think of a return as the electronic version of a bounced check. But, while bounced checks are generally caused by insufficient funds, that’s only one of multiple reasons why an ACH return may happen.

Valid Reasons for an ACH Return

A consumer will usually need to submit a Written Statement of Unauthorized Debit (WSUD) to initiate an ACH return. This is a form which bank customers fill out if they find incorrect or invalid debits on their accounts.

The WSUD is supplied by the financial institution where the charge took place. Submitting one initiates the process of reversing an ACH debit that the user claims was unauthorized.

Legitimate reasons to consider an ACH dispute include:

• The payment failed due to incorrect information details
• The transaction was misrouted and therefore incorrectly processed
• The payment failed due to a duplicate entry
• A credit was unintentionally sent to the receiver during the return process
• The payment was not returned within the NACHA-mandated timeframe

The party responsible for a failed ACH transaction will get hit with an ACH return fee, which typically ranges from $2-5 per occurrence.

A “lack of authorization” return, for example, will often result in a fee for the RDFI. Returns that stem from insufficient funds, however, will likely mean a fee charged to the customer’s account. Going back to our earlier analogy, think of it like a bounced check fee, but for electronic bank transfers.

What is an ACH Return Code?

ACH Return Codes

[noun]/ā • cē • eɪCH • rə • tərn • kōd/

An ACH return code is a 3-digit alphanumeric indicator attached to a returned ACH transaction. The code is meant to explain why an ACH transfer could not be processed.

Each return includes a three-character ACH return reason code that can point the recipient to additional details, and help explain why the return happened.

There are over 80 unique return codes, and each one represents a different type of return. ACH return codes are a type of shorthand for specific information concerning the return, much like the card decline codes or dispute reason codes used by credit card networks.

All ACH return reason codes consist of the letter “R” followed by two numbers (R01, R12, R22, etc.). There are also specific return time frames, which can differ between codes.

ACH Return Codes: The Complete List

With ACH transactions, there are dozens of possible return request scenarios. However, most returns happen for a few common reasons. With that in mind, let’s look at a few of the most frequently used ACH return reason codes, along with the time frames in which an ACH return may be requested using these codes:

Return Code	Reason for Return	Description	Response Time Frame
R01	Insufficient Funds	Insufficient balance to process transaction	2 banking days
R02	Account Closed	Previously active account has been closed	2 banking days
R03	Unable to Locate Account	Account number structure is valid, but doesn’t match the entry or is not an open account	2 banking days
R04	Invalid Account Number	Incorrect account number structure	2 banking days
R05	Unauthorized Debit to Consumer Account via Corporate SEC Code	An unauthorized debit entry was transmitted to a consumer account	60 calendar days
R06	ODFI Requested Return	The Originator’s bank asked for the return	60 calendar days
R07	Authorization Revoked by Customer	Consumer revoked a previously authorized entry	60 calendar days
R08	Payment Stopped	The Receiver requested the stop payment of an ACH debit entry	2 banking days
R19	Uncollected Funds	Sufficient balance exists, but requested amount brings available balance below amount of debit entry	2 banking days
R10	Customer Claims Originator Is Not Known to/Is Authorized to Debit Receiver’s Account	Receiver has no relationship with the Originator or has not authorized the Originator to debit the account	60 calendar days
R11	Customer Advises Entry Not in Accordance with the Terms of the Authorization	Debit was inaccurate or improperly initiated; source document was ineligible; notice was not provided to the Receiver; or amount was inaccurately obtained	60 calendar days
R16	Account Frozen	Funds unavailable due to action by the RDFI or legal action	2 banking days
R20	Non-Transaction Account	The RDFI’s policies restrict activity to account	2 banking days

Again, those are just the return reason codes you’re most likely to see attached to an ACH return request. There are plenty of others, from non-compliance with state or local regulations to situations where one or the other party is deceased.

You can click below to check out a complete list of ACH return codes:

View Complete List of ACH Return Codes

Return Code	Reason for Return	Response Time Frame
R12	Account Sold to Another DFI	2 banking days
R13	Invalid ACH Routing No.	Next file delivery time after processing
R14	Representative Payee Deceased	2 banking days
R15	Beneficiary / Account Holder Deceased	2 banking days
R17	File Record Edit Criteria / Suspicious Entry with Invalid Account No. / Return of Improperly-Initiated Reversal	2 banking days
R18	Improper Effective Date	Next file delivery time after processing
R19	Amount Field Error	Next file delivery time after processing
R21	Invalid Company ID	2 banking days
R22	Invalid Individual ID	2 banking days
R23	Receiver Refused Credit	RDFI must transmit return upon receipt of refusal
R24	Duplicate Entry	2 banking days
R25	Addenda Error	Next file delivery time after processing
R26	Mandatory Field Error	Next file delivery time after processing
R27	Trace Number Error	Next file delivery time after processing
R28	Routing No. Check Digit Error	Next file delivery time after processing
R29	Not Authorized by Corporate Customer	2 banking days
R30	RDFI not in Check Truncation Program	Next file delivery time after processing
R31	Permissible Return (CCD and CTX only)	N/A
R32	RDFI Non-Settlement	Next file delivery time after processing
R33	Return of XCK	60 calendar days
R34	Limited Participation DFI	Next file delivery time after processing
R35	Improper Debit	Next file delivery time after processing
R36	Improper Credit	Next file delivery time after processing
R37	Source Document Presented	60 calendar days
R38	Stop Payment on Source Document	60 calendar days
R39	Improper Source Document	2 banking days
R40	Return of ENR	N/A
R41	Invalid Transaction Code	N/A
R42	Routing No. / Check Digit Error	N/A
R43	Invalid DFI Account No.	N/A
R44	Invalid Individual ID No.	N/A
R45	Invalid Individual / Company Name	N/A
R46	Invalid Representative Payee Indicator	N/A
R47	Duplicate Enrollment	N/A
R50	State Law Affecting RCK Acceptance	N/A
R51	Ineligible / Improper Item Related to RCK	N/A
R52	Stop Payment on Item Related to RCK	60 calendar days
R53	Item and RCK Presented for Payment	60 calendar days
R61	Misrouted Return	60 calendar days
R62	Erroneous / Reversing Debit	60 calendar days
R67	Duplicate Return	N/A
R68	Untimely Return	ODFI must transmit return within 5 business days
R69	Field Error	ODFI must transmit return within 5 business days
R70	Permissible Return Not Accepted / Not Requested by ODFI	ODFI must transmit return within 5 business days
R71	Misrouted Dishonored Return	ODFI must transmit return within 5 business days
R72	Untimely Dishonored Return	ODFI must transmit return within 5 business days
R73	Timely Original Return	ODFI must transmit return within 5 business days
R74	Corrected Return	N/A
R75	Return Not Duplicate	ODFI must transmit return within 5 business days
R76	No Errors Found	Contested return must be transmitted within 2 business days
R77	Non-Acceptance of R62	Contested return must be transmitted within 2 business days
R80	IAT Coding Error	Contested return must be transmitted within 2 business days
R81	Non-Participant in IAT Program	Contested return must be transmitted within 2 business days
R82	Invalid Foreign RDFI Identification	Contested return must be transmitted within 2 business days
R83	Foreign RDFI Unable to Settle	Contested return must be transmitted within 2 business days
R84	Not Processed by Gateway	N/A
R85	Incorrectly Coded Outbound Int’l Payment	2 banking days

ACH Returns vs. Chargebacks: What’s the Difference?

Some people confuse ACH returns with chargebacks, to the point that they’re sometimes described as “ACH chargebacks.” However, ACH returns and chargebacks are two very different things.

Cardholders and financial institutions are hyper-aware of the threat posed by card fraud. As a result, cardholders can dispute credit card charges and often get chargebacks filed on their word alone. Money can then be removed from the merchant’s account without warning, even months after the transaction. 

There is a formal process by which merchants can fight the chargeback, and the card network may even be called in to make a final judgment. However, the odds of success are relatively low.

ACH transactions, on the other hand, are cleared between banks automatically, even before the customer’s bank verifies the account balance. If there turns out to be an issue, however, the amount has to be refunded within two days. Sometimes the ACH operative will even hold the money for 3-5 days, making sure everything is clear before releasing the funds to the receiver.

With ACH transactions, there’s really nothing here to “charge back.” This is a simple return, usually with no direct involvement from the customer or the merchant.

Dishonoring ACH Returns

What if an ACH return was not properly authorized, though? Maybe an ACH return is submitted, but the reason given is not valid? In this case, the party that received the ACH return notification can request that the ACH return be reversed, or “dishonored.”

Dishonoring an ACH return can be done under the following circumstances:

In any of the above cases, an ACH return issuance would result in an unintended credit being granted to one person’s account. So, there would be grounds for that ACH return to be canceled.

Keep in mind, however, that there is a very tight deadline for requesting that a return be dishonored. A dishonored return must be transmitted within five banking days of the return settlement date.

Tips for Avoiding ACH Return Codes

ACH returns are bad news for everyone. 

For merchants, the damage comes in the form of lost revenue from bank transfers that are ultimately reversed. For ODFIs, too many ACH returns could actually lead to the loss of network privileges. This can happen if the ODFI breaches any of the following thresholds within a 60-day period:

Return Type	Threshold, as % of Total ACH Transactions	Calculated Based on Return Codes
Administrative	3%	R02, R03, and R04
Unauthorized	0.5%	R05, R07, R10, R29, and R51
Overall	15%	All return codes

Many customer issues, such as insufficient funds, are beyond merchants’ and banks’ control. Nevertheless, adhering to best practices can help:

• Ensure routing numbers, account numbers, and transit numbers are entered correctly.
• Maintain strict compliance with all NACHA requirements.
• Keep an eye out for excessive returns tied to individual users.
• Validate that the account is active and is set up for ACH transfers.
• Check that the account is set up to receive the type of transaction in question.
• Define a set time frame for users to cancel a transaction, in case of unintended authorization.

Final Thoughts

ACH transfers can be a low-hassle way to send or receive money. For merchants, it is a viable alternative payment option that could make customers happy. 

Even with precautions in place, however, sometimes ACH payments will fail to go through.

As a merchant, you need to have a plan in place to accept payments when ACH transfers are not available. You also need to have a way of recovering funds lost if an ACH transfer goes wrong.

Talk to one of our experts today about developing a broader, more comprehensive solution for payments and risk mitigation.