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Automated Clearing House (ACH) Return | B2B Finance Glossary

Sep 21, 2023 by Zazil Martinez

What Is An Automated Clearing House (ACH) Return? An Automated Clearing House (ACH) return, also known as an ACH reject, is initiated when the ACH transaction cannot go through as intended. However, it’s important to note that most ACH payments go through without issue. ACH stands for Automated Clearing House: the official electronic network that initiates payments from one bank account to another. It connects over 10,000 banks and financial institutions in the US. ACH payments are run by the National Automated Clearing House Association (NACHA) and include different payment categories such as direct deposits, peer-to-peer payments, bill payments initiated by e-commerce platforms, and ACH payments initiated by paper checks. Every ACH transaction involves an Originating Depository Financial Institution (ODFI) and the Receiving Depository Financial Institution (RDFI). An ODFI is a financial institution that operates as the interface between the ACH network or Federal Reserve and the transaction’s originator (the party that created the ACH transaction in the first place). Essentially, the ODFI is the entity that helps initiate the original transaction. The RDFI is a financial institution receiving entries (another name for payments or payment requests) directly or indirectly from its ACH operator (the Federal Reserve or the ACH network). These entries are either in the form of debit entries or credit entries. RDFIs must accept all entries to their customers’ accounts to comply with NACHA’s rules regarding ACH operations. In an ACH transaction, the ODFI will send an ACH request to the RDFI, which will either be accepted or rejected. If the ACH request is denied, the receiver sends an ACH return to the originator with a specific code that signifies the reason for the issue. This process is conducted with the ACH operator that processes all ODFI and RDFI transactions.