In order to guarantee the smooth operation of your business’s Automated Clearing House (ACH) payment system, it is essential to be familiar with the various return codes associated with ACH payments, including how to handle a returned payment.
This article specifically focuses on the R23 ACH return code and provides guidelines on how to resolve it effectively, preventing any disruptions to your business’s cash flow. Understanding the return codes and how to troubleshoot them is crucial to managing your ACH payment process successfully.
What are ACH Returns?
ACH returns are transactions that are returned to the originating financial institution by the receiving financial institution due to certain errors or issues. These errors can range from incorrect account numbers, insufficient funds, closed accounts, or regulatory compliance issues, among others.
When you return an ACH transaction, the funds are typically returned to the originator’s account, and the originator may incur a fee for the return. It’s crucial for businesses to understand the various reasons why an ACH payment may be returned, to minimize the risk of returns and ensure a smooth ACH payment process.
The Process of ACH Return Code
According to the NACHA (National Automated Clearing House Association) guidelines, there are 80 distinct ACH return codes that can be generated in the event of a failed ACH transaction. While it may not be necessary to memorize all 80 codes, it’s a good idea to familiarize yourself with some more common ones, such as the R23 ACH return code.
The ACH network enables electronic transfers of funds between financial institutions in the United States. The ODFI (Originating Depository Financial Institution) starts the ACH transaction, which can be a bank, payment processor, or payment gateway that has received endorsement from NACHA to perform ACH transactions.
The RDFI (Receiving Depository Financial Institution) then completes the transaction by either debiting the account or crediting it, depending on the type of transaction. Banks and third-party payment providers must also be RDFIs in order to support customer payments.
An ACH return code is created when an issue arises, and the ODFI is unable to send or receive payments from the RDFI. This code indicates the reason for the transaction failure and can be used to troubleshoot the issue. Understanding the roles of the ODFI and RDFI, as well as the meaning of the ACH acronym, is essential to effectively manage ACH transactions and avoid any potential payment failures.
What’s the Meaning of ACH Return Code R23?
ACH return code R23 is a code generated by the National Automated Clearing House Association (NACHA) in the event of a failed Automated Clearing House (ACH) transaction. The code is used to indicate the reason for the transaction failure, and understanding its meaning is essential for businesses to manage their ACH transactions and prevent payment failures effectively.
ACH return code R23 indicates explicitly that the transaction has been returned due to “entry not authorized by the receiver.”, meaning that the account holder or the financial institution has not given permission for the debit to be processed, and therefore the transaction has been returned. This can be due to various reasons, including the account holder denying authorization for the transaction, the transaction being made without the account holder’s knowledge, or being made with incorrect account information.
In the event of an ACH return code R23, the originating financial institution will typically return the funds to the account holder, and the account holder may incur a fee for the return. To avoid this type of return, businesses should ensure that they have obtained proper authorization for the transaction and that they are using accurate and up-to-date account information for their ACH transactions.
What is the Wait Time for the ACH Return Code?
The time frame for an ACH return code depends on the specific rules set forth by the National Automated Clearing House Association (NACHA) and the receiving financial institution. However, in general, most ACH returns are processed within a few business days after the initiation of the transaction.
According to NACHA’s Operating Rules and Guidelines, an ACH debit transaction can be returned within 5 banking days of the settlement date. On the other hand, you can return an ACH credit transaction within 60 calendar days of the settlement date.
It’s important to note that these time frames can vary based on the receiving financial institution’s policies and procedures. Some institutions may process returns more quickly, while others may take longer. It’s always best to check with the specific institution to determine the exact time frame for ACH returns.
How Much do ACH Return Fees Cost?
The cost of an ACH return fee can vary greatly and is determined by several factors, including the financial institution and the reason for the return. Usually, the fee can range anywhere from $5 to $15 per return, but it’s not uncommon for it to be more or less.
The fees can quickly add up for businesses that handle a large number of ACH transactions. To reduce the risk of incurring these fees, it’s essential to take the necessary steps to avoid ACH returns, such as obtaining proper authorization and using accurate account information.
Before using ACH for your business, it’s advisable to check with your financial institution to find out the specific fee for ACH returns and any other related charges. This way, you’ll clearly understand the total cost of using ACH for your business.
How to fix the R23 Return Code?
Here are several solutions that can help fix the R23 return code in Automated Clearing House (ACH) payments:
Verify account information
Ensure that the account information you are using to initiate the ACH transaction is accurate and up-to-date. Double-check the account number, routing number, and name of the account holder to avoid any errors.
Obtain proper authorization
Ensure you have obtained proper authorization from the account holder to initiate the ACH transaction, which includes getting a signed authorization form or using a secure online authorization process.
Check for account restrictions
Some financial institutions may have restrictions on ACH transactions, such as daily or monthly transaction limits. Be sure to check with your financial institution to ensure that there are no restrictions on your account.
Correct the issue with the originating bank
If the issue is with the originating bank, you may need to contact them to resolve the problem. They may need to correct incorrect account information, determine a security issue, or perform some other action to resolve the issue.
Monitor your account activity
Regularly monitor your account activity to identify any issues with ACH transactions. It will help you quickly identify any returns and take the necessary steps to resolve the issue.
By following these steps, you can help avoid the R23 return code and ensure a smooth ACH payment process for your business. However, if the issue persists, consulting with a banking or payment professional may be necessary for further assistance.
Conclusion
Businesses need to understand the different ACH return codes, particularly the R23 code, in order to effectively manage their ACH payment process and minimize the risk of payment failures.
The R23 code indicates that the transaction has been returned due to a lack of authorization from the account holder or the financial institution. The cost of an ACH return fee can vary, and businesses need to take the necessary steps to avoid returns and reduce the risk of incurring fees, such as obtaining proper authorization and using accurate account information.
This article provides guidelines on how to resolve the R23 return code and information on the time frame and cost of ACH returns.
