A return on an eCheck transaction has the same impact as a chargeback to a credit card purchase for a merchant. The higher the return rate, the greater risk you pose to the bank processing your eChecks. This results in lost revenue, high return fees and the greatest loss of all is account closure.
What is an eCheck return? The receiving or consumer banks can reject debit or credit entries for a variety of reasons (e.g., insufficient funds, account closed, authorization revoked, etc.) This is referred to as a return. Merchants are liable for the amount of all returned transactions plus the associated return fees. Receiving banks are supposed to send returns within 2 banking days of settlement.
There are many different types of returns;however, unauthorized returns pose one of the greatest risks to a merchant as this is often treated as fraud by the bank when in fact it may simply be a matter of the customer not being provided or not recalling the name of the company in whose name the eCheck was drawn. Consumers can submit a claim to their bank revoking a claim; the bank sends an unauthorized return through the ACH network to the merchant. The receiving banks are supposed to send unauthorized returns within 60 banking days of settlement; however, the banks can accept a consumer claim beyond 60 days.
"unauthorized returns pose one of the greatest risks to a merchant..."
No payment method is without its challenges. In the case of eChecks, most of these can be overcome by understanding and addressing the codes for returned payments. There are many reasons an eCheck transaction might get returned. Sometimes this is due to simple human error and sometimes a more complicated issue arises. Regardless of the reason, there are costs associated with returns from return fees to loss in revenue and potential loss of your merchant account. Some returns are inevitable but many can be either minimized or prevented. Below are some of the more common return codes you may encounter.
- R01: Insufficient Funds – This return is the most frequent code seen and means the consumer did not have enough funds in their account when the transaction was presented to their financial institution. Unlike credit and debit card payments, eCheck (ACH) transaction are not done in real time. When the representative enters the payment information, there is no way to determine if the funds are available.
- R02: Account Closed
- R03: No account/Unable to Locate Account – This code can mean that the banking information does not match the name of the customer’s name, or it can indicate that the account number doesn’t correspond to any open account.
- R04: Invalid Account Number – This means there is something wrong with the bank account information such as an incorrect amount of digits in the account number
- R08: Payment Stopped – Receiver of a recurring debit transaction has stopped the payment
- R14: Account Holder Deceased
- R16: Account Frozen – Funds are not available due to a specific action by the RDFI (Receiving Depository Financial Institution)
- R20: Non-Transaction Account – This indicates that the account provided is not set up for transactions such as a savings account being used rather than a checking account
The codes below are a few which indicate a payment is being blocked. These codes are considered chargebacks and often entail a higher return fee with your payment processor. Chargebacks indicate the consumer has told their financial institution they did not authorize a payment. The financial institution is obligated to immediately return the eCheck (ACH) transaction and refund the monies into the consumer’s account. This might happen if the spouse of the consumer wasn’t aware of the transaction or didn’t recognize it on their bank statement. For example the description (descriptor) on the bank statement doesn’t match the name of the business.
- R05: Unauthorized Debit to Consumer’s Account – Account number structure was not valid
- R07: Authorization Revoked – Consumer who had previously authorized eCheck (ACH) debits has revoked their authorization. Funds must be returned no later than 60 days from the settlement date and the customer must sign an affidavit
1. Confirm the description which appears on the customer’s bank statements match your business name and how the descriptor will appear.
2. Include a customer service number on all your payment receipts, emails and confirmations. It is better to have your customer call you first instead of their bank to revoke the authorization.
3. Make sure your customer service phone is answered consistently and a voicemail option is available if the call is outside of business hours plus ensure you return the call promptly.