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ACH Reversals

An ACH reversal refers to an erroneous ACH payment that a payment originator requests to take back, or reverse.

Even if the sender thought they validated and verified all information before initiating the payment, the reality is that sometimes payment errors happen—from minor discrepancies in amounts to transactions sent to the wrong recipient.

While reversing an ACH payment is slightly easier than other payment rails, like wire transfers for example, it’s important that individuals and businesses take every preventative measure to avoid this situation. When individuals or businesses request ACH reversals too often, banks begin to question their trustworthiness in the payment space. In other words, ACH reversals should be used scarcely—reserved for emergency situations.

What information is necessary to submit an ACH reversal?

The National Automated Clearing House Association (NACHA) is responsible for the rules and regulations surrounding ACH payments and reversals. The rules can be strict, but offer important guidelines for merchants who need to submit a reversal. First, the reversal must be sent to the bank within 24 hours of noticing the error and no later than 5 banking days after settlement. Then the payment originator must also reach out to the payment recipient to inform them a reversal is in progress. Finally, the reversal must be initiated for one of the following five reasons:

  • Duplicate payment
  • Incorrect payment recipient
  • Incorrect payment amount
  • Payment date earlier than intended (ACH debit only)
  • Payment date later than intended (ACH credit only)

Companies that use ACH payments should stay attentive to NACHA’s guidance on reversals, as they recently updated their rules to include new penalties for violations.

What is an example of an ACH reversal in action?

Imagine this: it’s 6:01 pm and ACH payment processing just wrapped up. You suddenly realize your business, Cheddar, sent another company, Fondue, the wrong amount of money. Or you accidentally sent the payment to a company called Fountain by mistake. Or you sent it twice.

As soon as the payment originator realizes the error, the reversal process usually starts by emailing the recipient to alert them of the error and then contacting the bank to fill out a “Reversal Request” form as soon as possible. It’s crucial that you act quickly, considering the reversal must be sent to the bank within 24 hours of noticing the error and no later than 5 banking days after settlement. If the reversal is accepted, the reversed transaction is reconciled, and the funds are transferred back to the originator.

What are the origins of ACH reversals?

The history of ACH reversals begins with ACH payments and the founding of NACHA. Long before electronic payments, money used to move through banks via paper checks. Clearing houses were physical locations where bankers would gather at the end of the business day to collect checks and “clear” them, ensuring money was accounted for accurately. Over time, large volumes of paper checks became difficult to track and banks were eager for a more efficient solution.

In the early 1970s, a number of check clearing houses banded together in partnership with the federal government to build an automated payment method that could be used nationwide. With a regulated, national network of automated clearing houses, U.S. citizens and businesses could buy goods, get paid, and send payments with greater ease and efficiency. In 1974, NACHA was founded to regulate the ACH system as it still does today. Now, NACHA is still responsible for the rules that dictate ACH payments and reversals.

New technology and growing demand for convenience and efficiency are transforming how money moves—and how companies manage it. Today, ACH reversals can now be automated or built into existing operational tools using APIs.

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