ACH return codes: What they mean and how to resolve them

Your business probably appreciates the speed, affordability, and security of ACH payments. Unfortunately, ACH transactions sometimes fail. When that happens, you get an ACH return code.

ACH return codes explain why an ACH payment failed, whether due to insufficient funds, invalid account numbers, or other issues.

Understanding these codes can help your accounts payable (AP) team identify patterns, resolve payment failures, and improve transaction success rates. This can save your company time and money and help ensure timely payments.

Let’s look at what ACH return codes are and why they matter, and explore some of the most common codes to be aware of.

What are ACH return codes?

ACH return codes, also called ACH return reason codes, are three-character error messages generated when an ACH transaction fails.

Each code begins with the letter "R" followed by a two-digit number. For example, R01 is the ACH return code for insufficient funds, and R04 is the code for an invalid account number. These standardized codes provide a clear explanation for the failure, making it easier for your business to diagnose and resolve payment issues.

ACH return codes can be used by banks, financial institutions, businesses, and finance professionals. Understanding what they're for can help you remain compliant with the rules around ACH payments, and keep payment processing efficient.

How do ACH return codes work?

When an ACH payment fails, the Receiving Depository Financial Institution (RDFI) assigns a return code explaining the reason. This code is sent to the Originating Depository Financial Institution (ODFI), which then relays the information to the business that initiated the transaction.

The RDFI is the bank or financial institution receiving the ACH payment. It can assign an ACH return reason code if the payment doesn't meet certain criteria or there's some other issue that prevents it from accepting the payment.

The ODFI is the bank or financial institution sending the ACH payment. If it feels a payment return was improper, it can assign dishonored return codes to challenge it.

When a payment receives an ACH return code, take action to resolve the issue as quickly as possible. Delays can negatively affect your cash flow, which is why having ACH return code information at your fingertips is essential.

How are ACH return codes assigned?

Banks assign ACH return reason codes based on certain criteria—for example, if a sending account has insufficient funds to complete the transaction, or the receiving account has been closed. Incorrect payment information, from the account number to the dollar amount, may also trigger ACH return codes.

The regulatory body Nacha oversees this process, ensuring consistency in return codes across the ACH network. They also standardize codes, which makes it easier to both issue and respond to them. Some codes are more common for consumer transactions, while others pertain to business transactions.

Why understanding ACH return codes is important for your business

Learning at least some of the most common ACH return codes will help you quickly determine why any issues with your ACH payments have occurred and figure out whether a larger problem needs addressing. By understanding these codes, you’ll be able to:

1. Identify payment issues: These codes provide a standardized reason for failed transactions so your business can address problems quickly
2. Enhance communication: Return codes create transparency between banks and your business, helping resolve issues efficiently and reducing delays
3. Improve transaction success rates: By analyzing return codes, your business can detect recurring issues, adjust payment methods, and take proactive steps to reduce failures
4. Ensure Nacha compliance: Monitoring return codes helps your business stay within Nacha’s 15% return rate threshold, avoiding penalties and maintaining uninterrupted ACH services

Knowing how ACH return codes work and how to respond to them is key to optimizing payment workflows, reducing failed transactions, and ensuring compliance with ACH network rules.

List of the most common ACH return codes

There are 85 ACH return codes. This breakdown of 20 of the most common ones gives you a good idea of how they work and the types of situations they can alert you to.

While these ACH return reason codes aren’t numbered in order from most to least used, the first four return codes—R01, R02, R03, and R04—tend to be the most commonly encountered and may be worth memorizing.

Getting an ACH return code can be stressful when you don’t know what it means or what to do about it. Understanding these codes and being able to quickly look up their meaning will make it much easier to determine your next steps and resolve any issues you encounter.

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List of less common and international ACH return codes

You may occasionally run into some return codes outside the 20 we covered above. Here's a list of less common and international ACH return codes you might encounter, from R21 to R85, along with their descriptions and reasons:

As you can see, ACH return codes can alert you to a wide variety of reasons for an ACH payment failure, such as insufficient funds, a closed account, or an invalid account number. That information will help you determine how to proceed in correcting the issue.

If you regularly experience failed ACH returns, you can use these codes to figure out why. Resolving failed ACH payments costs time, puts you at risk of paying invoices late, and costs money.

ACH returns vs. ACH reversals

ACH returns and ACH reversals are similar-sounding terms with very different meanings. Understanding the difference will help you manage transactions more effectively and avoid confusion.

For example, if you make an ACH payment by mistake and want to reverse it, reading about ACH returns won’t be helpful. Likewise, if you experience an ACH payment failure, researching ACH reversals will only cause confusion.

To clarify, let’s break down the differences between ACH returns and ACH reversals:

How to manage and resolve ACH returns

Reducing ACH returns requires taking proactive steps to prevent failed transactions and ensure smooth payment processing. Here are some best practices to follow when you receive a return code:

• Understand return codes: Learn the meaning of each ACH return code to quickly identify and resolve issues. For example, for code R01 (insufficient funds), contact the payer and request that they remit payment from an alternative source.
• Verify account details: Double-check vendor account and routing numbers before processing payments
• Notify vendors promptly: Inform customers when a transaction is returned and provide guidance on how to resolve it
• Use account verification tools: Implement solutions that complete the ACH verification process, and check for sufficient funds before initiating payments
• Monitor return patterns: Analyze return data regularly to spot recurring issues and adjust processes accordingly
• Stay Nacha-compliant: Keep return rates within Nacha thresholds to avoid penalties and ensure uninterrupted ACH access

Acting quickly when you get an ACH return code will help you get your payments back on track, minimize recurrences, and maintain strong vendor relationships.

Automate your AP with Ramp

With manual AP processes, data entry mistakes can lead to returned ACH payments or the need for an ACH reversal. You can avoid these errors and more by automating your AP process.

Ramp Bill Pay lets you scan or upload documents such as invoices, purchase orders, vendor onboarding docs, and receipts instead of entering all that information manually.

And with the ability to streamline the payment process with features such as automated workflows, two-way and three-way matching, and error alerts, you'll have complete visibility into your cash flow, too.

What else could Ramp do to streamline your AP process? Find out with a demo.

This post includes general information about ACH payments. For help with ACH functionality specific to Ramp, visit Ramp Support for more details.