No one likes to see their hard-earned money disappear, but when you make a purchase or payment that results in an ACH return, it may feel like your finances have been taken away from you.
An ACH return is a type of transaction reversal in which the funds are removed from their destination due to non-compliance with regulations. In other words, your bank has declined the payment and returned it to its source.
While this can be disconcerting for many individuals and business owners alike, there are specific steps you can take to ensure any future transactions receive positive results without experiencing an ACH return.
Read on as we explore what constitutes ACH returns, how they occur, and how best to avoid them going forward.
What’s an ACH return, and what does it mean for your business finances?
An ACH (Automated Clearing House) return is an electronic financial transaction between two entities that can be used for processing payments or transferring funds. They are widely used to transfer money from individuals to businesses or from one business to another.
ACH returns are essential to managing your business finances, as they allow you to control how and when money is received and sent.
Understanding how ACH returns work and apply to your specific business helps ensure your money moves safely and securely as needed. They also provide a convenient alternative to traditional methods of transferring funds like wire transfers, check deposits or cash exchanges.
Knowing how it works and when to use it is key to effectively managing the financial aspects of running a business.
How do you know if you have an ACH return?
If a payment or transfer fails due to a violation of a specific regulation, the bank will automatically initiate an ACH return.
In most cases, a notification will be sent directly to the business owner, informing them of the failed transaction and requesting a new payment/transfer method. The notification also includes a unique code representing the reason for the return – known as a return code.
Typically, a return code will consist of a three-digit number which helps the business owner identify why the transaction failed and take appropriate action to rectify it. Incorrect bank account numbers, insufficient funds, or a closed bank account cause the most expected returns.
Understanding the ACH return codes and what they mean is a vital step in identifying the cause of a failed transaction and taking the necessary steps to ensure a successful process in the future.
The consequences of not handling an ACH return properly
Many consequences can arise if a business owner or individual fails to take the necessary steps to resolve a failed transaction.
The first and most obvious one is a hit on the company’s reputation. A company that needs to handle ACH returns promptly will likely experience a decline in customer trust and a reduction in its credibility.
In addition, a failed ACH return can also result in a financial loss due to various fees or fines associated with a failed transaction. It is why it’s essential to handle an ACH return quickly and efficiently – if the issue is not resolved promptly, a business will be left significantly out of pocket.
How to prevent it from happening in the first place
The best way to avoid a failed transaction is always to ensure all information provided is accurate and up-to-date. It includes ensuring the correct bank account number, routing number, and address.
Additionally, if a payment or transfer involves a different currency, businesses should check for any exchange rate fluctuations that could result in an ACH return.
Another way to avoid a failed transaction is to use a credit card or e-payment system. These highly secure payment methods allow businesses to receive their money quickly and safely.
If a business opts to use a credit card instead of an ACH return, they should also check that their transactions are PCI compliant (Payment Card Industry Data Security Standard).
Finally, a business should always be aware of its transaction limits and ensure they do not exceed them, and it is crucial in avoiding a failed transaction and subsequent ACH return.
Tips for dealing with failed transactions
If a business is unfortunate enough to experience a failed transaction, there are a few steps it can take to rectify the problem.
Firstly, they should review the return code to determine why the transaction failed and take appropriate action based on that information. It’s also a good idea to seek advice or assistance from a financial expert who can provide a more detailed explanation of the return code and help resolve it.
Additionally, a business should always contact its bank or payment provider as soon as possible if a failed transaction occurs. This way, a business can determine what action needs to be taken to rectify the issue quickly and efficiently.
Finally, a business should ensure all ACH return codes are documented in a secure place, such as a database or spreadsheet, to help prevent the same issue from occurring again. This way, a business can track its ACH returns and develop a strategy for successful transactions in the future.