NACHA Return Codes Explained
There are around 60 reasons why an ACH transaction may be returned. For a list of these go to http://www.ach-payments.com/ach-return-codes.pdf.
We are going to talk about the comon ones and what they mean and how to reduce them. When an ACH transaction (request for funds transfer between bank accounts) goes to the Federal Reserve the ODFI and RDFI (originating bank and receiving bank) communicate with each other electronically regarding the transaction. The transaction may "settle" and funds are moved or the transaction may "reject". When this happens the reason for the rejection is coded.
R01 = NSF or insufficient funds
R02 = Closed bank account
R03 = Unable to locate the account. The account number "fits" the banks account number syntax but can't be located.
R04 = Invalid account number. Similar to R03 but the account 3 syntax is wrong meaning to many digits etc.
R07 = Authorization revoked. Chargeback-The customer has gone to their bank and signed an affadvit stating they revoke their assent to payment.
R08 = Stop Payment R10 = No authorization. Chargeback-Customer signs an affadavit at the bank stating "I never gave permission for the debit"
R29 = Corporate or Business account chargeback.
What to do about them?
R01's, R02's, R03's and R04's can be significantly reduced by using ATMVerify
(info at: http://www.ach-payments.com/atmverify.htm)
Essentially ATMVerify tells you in real time if an account is in "good status" or is NSF, invalid account, closed account or in stop payment mode. R7's and R10's are the most frustrating and if the percentage of these rejects exceed 2.5% your account may be subject to termination. Frustration arises because the customer may have received goods or services and may be perpetraing fraud by initiating the R07 or R10. You can fight the chargeback by maintaining written or verbal authorizations and presenting evidence to the customer's bank. The bank is SUPPOSED to reverse the chargeback. Try and talk with the person in the ACH department and be calm. Remember the customer is the bank's client. Present your evidence and remind them (nicely) they are obligated to investigate your evidence.