By: Cody V.,

As a Sales Rep with Dwolla, I often find myself educating others about not only about our tech stack, procedures, and company but also about the logistics of ACH payments. That process usually includes a candid conversation about ACH returns…

An Overview

ACH stands for the Automated Clearing House—it’s an electronic network allowing banks and their customers to send funds between one another in the US. NACHA, the self-regulatory body that manages the development, administration, and governance of the ACH Network, enforces a set of rules for when an ACH payment fails, which is called an ACH return.

NACHA rules apply to all participants in the ACH network, which includes not just banks and credit unions, but any entity who originates entries to the network or forwards on entries on an Originator’s behalf. For example, when you pay a utility bill via ACH, your utility company’s sends an ACH debit entry to its Originating Depository Financial Institution (ODFI). The ODFI sends the debit entry to the Receiving Depository Financial Institution (RDFI) that holds their customer’s bank account.  These transactions are settled within a business day; however, if there are insufficient funds in the customer’s bank account, an ACH reject will be issued and passed back within 2 business days of the receipt of the entry.

Most ACH return codes are received by the ODFI or RDFI two to three business days after the transaction was originated. However, other codes—like an R07 and R10—may be filed up to 60 days later (on behalf of a consumer bank account) after the transaction was originated.

You may be familiar with ACH return code R01 – Insufficient Funds, which simply means the available and/or cash reserve balance is not sufficient to cover the dollar value of the debit entry. That is just one example out of around 85 total ACH return codes that can happen.

However, each return code constitutes a different reason a payment can fail: some are administrative in nature like R02 and R03, yet others like R10 or R29 are more likely to be fraudulent in nature.

Here is a full list of ACH return codes

There are so many reasons an ACH payment can fail and logistics behind that payment failure are complicated, so it’s really no surprise I find myself spending a lot of time educating others about this ACH returns process.  

Below is a high-level overview of the complexities behind ACH returns.

Complexities of ACH returns

So what actually happens behind the scenes? What are the logistics of an ACH return?

For starters, remember the ODFI and RDFI I mentioned earlier. The process to move funds between the two institutions is not a one-step process, and if an ACH entry fails, that process becomes more lengthy and complex. Namely, the respective RDFI must initiate a reject and the ODFI then must make the appropriate corrections based on which of the over 85 ACH return codes took place. Further, there are some scenarios, such as fraudulent attempts, which can result in a funds-loss situation, requiring more action. Putting the lifecycle in the absolute simplest of terms, the following occurs. 1. A transaction is initiated. 2. The RDFI notifies the ODFI that there is an issue with the respective entry. 3. The ODFI takes appropriate corrective steps based on the return code. 4. The transaction ultimately fails.

While complex, ACH returns are an important aspect to understanding and implementing ACH payments. Returns can be difficult for any business to decipher while remaining compliant with NACHA rules, regulations, and law.

How Dwolla Helps with ACH Returns

Fortunately, Dwolla is here as a partner for you to help streamline the ACH transaction process. As an expert in bank transfers, we’ve spent the better part of a decade bringing automation and innovation to ACH payments.

Our Access API is incredibly simple—and our partners can attest to that.

All of this is wrapped up neatly into a simple, intuitive API and dashboard to help you monitor everything happening on your platform.

When it comes to helping your business handle ACH payments, ACH returns, and aforementioned complexities, perhaps the most important value we provide our customers lies not in any tangible product or feature, but rather in our overall strategy as a company.

We’re a partner, not just a vendor. And we collaborate and work with our customers, listening, understanding, and building mutually beneficial relationships. Yes, we provide a class-leading RESTful API with beautifully architected code and innovative features, yet we absolutely keep your satisfaction and business needs front and center. Feedback is a part of the process. Your success is also ours. Whether strategizing and building your business from the ground up, or launching a new product line, or perhaps completely re-thinking how your business goes to market, we’re here for you. Leave the complexities and heavy lifting of ACH payments to us. Focus on what you do best.

Get started with ACH transfers

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Financial institutions play an important role in the Dwolla network.

Dwolla, Inc. is an agent of Veridian Credit Union and Compass Bank and all funds associated with your account in the Dwolla network are held in pooled accounts at Veridian Credit Union and Compass Bank. These funds are not eligible for individual insurance, including FDIC insurance and may not be eligible for share insurance by the National Credit Union Share Insurance Fund. Dwolla, Inc. is the operator of a software platform that communicates user instructions for funds transfers to Veridian Credit Union and Compass Bank.