ACH return codes: Understanding what they mean

Your business probably appreciates the speed, affordability, and security of ACH payments. Unfortunately, ACH transactions do 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, saving your company time and money and helping 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?

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.

How ACH return codes are created and communicated

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 National Automated Clearing House Association (Nacha) oversees this process, ensuring consistency in return codes across the ACH network.

Why understanding ACH return codes is important for your businesses

Understanding ACH return codes will help you quickly determine why any issues with your ACH payments have occurred and figure out whether a larger problem also 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

Understanding ACH return codes 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 different ACH return codes. For now, this breakdown of 20 of the most common codes can give you a good idea of how they work and the types of situations they can alert you to. You can find the less common and international codes toward the end of this article.

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

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 fixing the issue.

If you’re experiencing failed ACH returns regularly, you’ll want to use these codes to figure out why. Having to resolve failed ACH payments costs time and puts you at risk of paying invoices late, and it costs money too.

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:

Managing ACH return codes effectively

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

• Understand return codes: Learn the meaning of each ACH return code to quickly identify and resolve issues
• 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 confirm account ownership 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

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

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List of less common and international ACH return codes

Getting an ACH return code can be stressful when you don’t know what they mean 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.

We’ve already gone over the most common ACH return codes. Here is the list of less common and international ACH return codes you might encounter, from R21 to R85, along with their descriptions:

Automate your AP with Ramp

ACH payments can fail for reasons beyond your control, so it’s important to be familiar with ACH return codes and how they work so you can resolve those issues quickly. Of course, you’ll also want to minimize ACH payment failures that are within your control as much as possible.

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 AP software lets you scan or upload documents like invoices, purchase orders, vendor onboarding docs, and receipts instead of entering all that info manually. And with the ability to streamline the payment process with features like 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 Bill Pay 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.