Maximizing Efficiency: The Role of Bank Account Validation in Reducing ACH Returns

Automated Clearing House (ACH) payments have emerged as a preferred method for electronic fund transfers, enabling seamless transactions between financial institutions. Unlike traditional methods that rely on paper checks or wire transfers, ACH payments facilitate direct transfers of funds electronically, enhancing transactional reliability and reducing processing times.  

While Automated Clearing House (ACH) transactions offer numerous benefits, they are not without their challenges like ACH returns. In this blog we will discuss what an ACH return is and how you can prevent them. 

What is an ACH return?  

Much like a bounced check, an ACH transaction can be returned for various reasons, such as insufficient funds, closed accounts, invalid customer details, or stop payment orders.  

Example of common ACH return codes ValidiFI helps predict: 

Understanding Bank Account Validation 

Bank account validation plays a crucial role in ensuring that payments and transfers proceed smoothly, thereby reducing instances of ACH returns. Bank account validation involves verifying the accuracy and legitimacy of account details before initiating transactions. This process typically includes: 

• Account Number Verification: Ensuring the account number format is correct and matches the bank’s records. 

• Routing Number Verification: Confirming the routing number is accurate and corresponds to the correct financial institution. 

How Bank Account Validation Reduces ACH Returns 

1. Accuracy in Transaction Details: By validating bank account information upfront, organizations can avoid common errors such as incorrect account numbers or invalid routing codes. This reduces the likelihood of transactions failing due to inaccurate data. 

1. Fraud Prevention: Validating bank accounts helps detect potential fraud by ensuring that the provided account details are legitimate and associated with the intended recipient. This safeguards against unauthorized transactions that could lead to ACH returns. 

1. Compliance with NACHA Rules: The National Automated Clearing House Association (NACHA) has an administrative return rate level for debit entries returned due to administrative or account data errors (Return Reason Codes R02, R03 and R04) is 3.0 percent. The established overall return rate level for all debit entries that are returned for any reason is 15.0 percent. Originators must examine their debit origination activity closely and decide how to address their return rates. 

Implementing Effective Bank Account Validation Practices 

To optimize the effectiveness of bank account validation and minimize ACH returns, organizations can consider the following strategies: 

• Automated Real-Time Validation Tools: Utilize a provider like ValidiFI to automate the validation process and verify account details in real-time 

• Ensure Return Thresholds: By leveraging a Nacha preferred provider, like ValidiFI, organizations can make sure they are meeting the return guidelines set out by Nacha. 

• Educating Customers: Encourage customers to provide accurate and up-to-date bank account information. Educating them about the importance of valid account details can help prevent errors. 

Bank account validation is not just about ensuring transaction accuracy; it’s a proactive approach to enhancing financial operations. By implementing robust validation processes, organizations can mitigate the risk of ACH returns, improve efficiency, and provide a smoother experience for both businesses and consumers alike. Embracing these practices not only reduces costs associated with transaction reversals but also strengthens trust and reliability in financial transactions. 

ValidiFI Predictive Bank Account and Payment Intelligence 

Numerous ValidiFI customers rely on our advanced bank account validation tools to maintain compliance with NACHA’s return rate thresholds and ensure seamless transactions. Our vAccount and vAccount+ solutions are effective at identifying:  

• Invalid and non-ACH capable routing numbers  

• R1 returns (NSF returns) 

• R2, R3 and R4 returns (Closed, Unable to locate, and Invalid accounts) 

• Other administrative returns like R20 and R29 (Non transactional and corporate customer advises not authorized) 

• Successful payments (valid accounts) 

Discover how vAccount or vAccount + can benefit your organization—contact us today to learn more. 

Check out this helpful resource from Nacha on How to calculate administrative or overall return rate levels