Understanding ACH Dispute Codes

Accepting automated clearing house (ACH) payments is a great way to grow your business. ACH is another way to increase your payment method offerings, allowing you to reach a broader audience of customers. Some customers will simply prefer to pay via ACH than any other method. Not everyone accepts ACH as payment, so you’ll already be ahead of those competitors.

Similar to credit cards, ACH payments can be disputed. When that happens, you’ll incur a fee. The key to avoiding ACH disputes is in understanding ACH Dispute Codes. The more you know about these codes, the better your chances will be in avoiding them.

In this article, we look at ACH dispute codes, grouped by similarity, to get a better understanding of what’s happening behind each code.

What Are ACH Dispute Codes?

An ACH dispute code is created when a payment is returned to the customer because the customer disputed the payment, there were issues with the financial institution processing the payment, unauthorized use, insufficient funds, and/or a number of other reasons. Customers have up to 90 days to dispute a payment.

An ACH dispute results in a chargeback for the business that processed the payment. Chargeback fees can start at $25 and go up from there. You can attempt to work with the customer on a resolution and potentially have the chargeback reversed. Use the code received for the dispute to look it up below. This will help you to narrow a resolution.

ACH payments are run through the ACH network, which is overseen by the National Automated Clearinghouse Association (NACHA). NACHA has certain return levels that its customers must stay below to avoid having their account closed. The level for Unauthorized Debit Entries is 0.5 percent. This is down from 1.0 percent. NACHA believes that rates of return over 0.5 percent indicate problematic origination practices.

The following is a list of ACH dispute codes, grouped by category.

Administrative Failures

Administrative failure codes can be related to customers not typing in the right account number. On the customer ACH setup or payment form, include the account number field twice, the second field is there for verification.

Response Code Definition
R02: Account Closed Customer or Receiving Depository Financial Institution (RDFI) has closed the account.
R03: No Account/Unable to Locate Account Account number passes check digit validation but does not match customer information, or account has been closed.
R04: Invalid Account Number Account number structure is not valid.

Common ACH Return Codes

Response Code Definition
R01: Insufficient Funds Account doesn’t have enough funds to pay for purchase.
R06: Returned Per ODFI Request The ODFI has requested that the RDFI return the ACH payment.
R08: Payment Stopped The receiver has stopped payment.
R09: Uncollected Funds The account balance has enough funds to cover payment but doing so will bring the available or cash reserve balance below the dollar value of the debit entry.
R14: Account Holder Deceased
R16: Account Frozen Funds may be in account but are not available for processing by ACH due to actions taken by the RDFI or by legal action.
R20: Non-Transaction Account Customer may have changed accounts.

Unauthorized Debit Entries

Sometimes a customer may forget buying something from you, especially if the customer is looking at the statement days or weeks later. When he/she sees a charge from “SC Plaz” instead of Scottsdale Auto Plaza, he/she may dispute it.

If the name of your business is truncated or otherwise looks different on customer statements, inform the customer of how the business name will appear on the statement. You can do this verbally (best) and by printing this info on the receipt. Even if you inform the customer verbally, always include the info again on the receipt.

As well, include your customer service phone number on the receipt. Also, be sure the voicemail states the business name. These tips will help to reduce disputes.

Response Code Definition
R05: Unauthorized Debit to Consumers Account Account number structure is not valid.
R07: Authorization Revoked Payment originally authorized by customer has been revoked.
R10: Customer Advises Not Authorized Item Is Ineligible, Notice Not Provided, Signatures Not Genuine, or Item Altered.
R29: Corporate Not Authorized Originator is not authorized to debit the customer’s account.
R51: RCK Entry Related Item Ineligible/Entry Improper.

Tips for Resolving ACH Disputes

Resolving ACH disputes starts with gathering the code description and contacting the customer. Sometimes the issue may simply be a matter of the customer not recognizing the charge.

In some cases, the customer may not know why the charge was disputed. For those disputes, check the two sections above titled “Common ACH Return Codes” and “Unauthorized Debit Entries.” You and the customer may need to contact the customer’s bank to resolve the issue.

If you and the customer have reached a resolution, also contact your ACH processor for further instructions to close out the case and refund any chargeback fees. The processor will probably have a few more steps to follow before the issue can be completely resolved.