As a Sales Rep with Dwolla I find myself educating others about not only our tech stack, procedures and company but also about the logistics and rules of ACH processing.

This usually includes a candid conversation about the ACH returns process:

  • What is it?
  • Why is this important?
  • How does Dwolla help?
  • What does this mean for your business?

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

ACH Overview

ACH stands for the Automated Clearing House—it’s an electronic network that allows 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 established a set of rules for when an ACH payment fails, 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 that 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 will authorize its Originating Depository Financial Institution (ODFI) to initiate an ACH debit entry from your individual account. This entry is then transmitted via an ACH Operator (typically the Federal Reserve Bank) to the utility company’s account at the Receiving Depository Financial Institution (RDFI).

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ACH Returns

ACH transactions are typically settled within one business day; however, an ACH payment can be rejected for nearly 80 reasons, causing an ACH return. For instance, an ACH return entry will be initiated by the RDFI to notify the utility company that there are not sufficient funds in its customer’s account to pay the bill. The original entry is then returned within two banking days of receipt of the original entry.

The ODFI is able to see that the entry is a return based on an alphanumeric code, called a Return Reason Code. Most ACH returns are received by the ODFI two to three business days after the transaction was originated. However, other ACH returns—with Return Reason Codes like R07 and R10—may be processed up to 60 calendar days after the transaction was originated.

You may be familiar with ACH Return Reason 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.

However, each Return Reason Code represents a different reason an ACH transaction 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 transaction can fail and logistics behind that transaction failure are complicated, so it’s really no surprise I find myself spending a lot of time educating others about the ACH returns process.

How Dwolla Helps with ACH Returns

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

Dwolla is incredibly simple—and our customers can attest to that:

  • We’re helping property managers offer fee-free transactions to their tenants, saving more than $700,000 a month in fees.
  • Businesses that employ independent contractors saw a 30% savings with payments powered by Dwolla.
  • Our ACH payment API allowed this cargo shipping marketplace to decrease their manual payment tasks by 98%.

When it comes to helping your business handle ACH payments, ACH returns and the 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 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.

With a guide for the complexities and heavy lifting of ACH processing, you can spend more time focusing on what you do best.

Best Practices to Avoid ACH Return Codes

Businesses can take advantage of additional integrations within the Dwolla Platform to decrease the chance of ACH return codes. Leveraging Plaid for bank account verification or balance checks can help with the R01 return code by performing balance checks to make sure enough funding is available for a transaction.

A Sift integration can tell you session data about the person interacting with your site as another layer of fraud prevention. The Sift integration—through the Dwolla Platform—can help identify bad actors and prevent these bad actors from initiating unauthorized debit transactions.

Simple techniques also include having a user enter in their bank account number twice, to avoid “fat fingering” when a user inputs their banking information.

The Dwolla Platform offers a suite of solutions for problems businesses face when trying to move money through their application. Test the Dwolla Platform in the Dwolla Sandbox, then reach out to our sales team to see how we can help improve your business.

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