You’ve surely heard it 1000 times before: follow the rules! When it comes to ACH Transactions transfers of money from your customers’ bank accounts into yours, following the rules for proper authorizations is critical to ensuring that you can defend yourself in the event that one of your customers disputes a charge. The good new is that with ACH, unlike with credit cards, as long as you have the proper authorization you will prevail. There are only three reasons an ACH transaction can be disputed:
- It was not authorized by the account holder
- It was for an amount different that the amount authorized by the account holder
- It was executed on a date prior to the date authorized by the account holder
In order to dispute a charge, the account holder must file a signed complaint with his/her bank that states, under penalty of perjury, that at least one of the above conditions is true. Disputes around amount and transaction date are generally clear cut. Where merchants typically find themselves with problems is understanding and obtaining proper authorization for the ACH transactions they process. NACHA, the organization governing all ACH transactions, has created a number of transaction types and authorization processes around each one that are commensurate with the risk associated with each type. Thus, there are more onerous requirements for processing transactions authorized over the phone than for electronically processing paper checks. These authorization processes are designed to protect both the business and the consumer, and have resulted in ACH being more secure for both parties than traditional paper check processing – as a consumer’s account information actually passes through fewer hands with ACH. The following are the most common ACH transaction types (or entry classes, to use NACHA’s language) used by small businesses:
- PPD: written permission for the ach debit required (a paper check does not constitute written permission for a PPD transaction)
- TEL: permission given over the phone, requires specific authorization language that is recorded or is emailed/faxed/mailed before the transaction is processed
- WEB: permission given over the web, requires specific authorization language that is actively acknowledged by the customer
- ARC and BOC: paper checks converted to ACH, requires notice to customers that checks may be converted
The key to processing properly is to submit the transaction using the entry class for which you have authorization. If you do not, and the transaction is disputed, you will not be able to defend the transaction. For example, if you have a paper check that a customer mailed to you, but you processed the transaction as PPD instead of as ARC, and the customer disputes the charge, the customer will get his money back – even though he sent you a perfectly valid check. If your head is now spinning, and you’re more confused than ever about ACH payment processing, take a deep breath and relax, not only can your payment processing system help you navigate the maze, it can even prevent you from making potentially costly mistakes. This was not always the case – in fact, many older systems are actually designed in a way that puts your business at risk, because they assigned a single entry class to all of your transactions. The best new systems, like PaySimple Solution 2.0, not only enable you to process multiple transaction entry classes they also include programming that actually prevents you from selecting the wrong one, as well as features that make using appropriate authorization language automatic. A few examples from PaySimple 2.0:
- All ACH payments processed from a PaySimple web payment forms are automatically coded WEB by the system.
- NACHA rules prohibit authorizing recurring payment schedules over the phone, thus TEL is not an option on the PaySimple recurring payment entry page.
- Email receipts contain required NACHA language based on entry class selected
Web payment forms automatically include NACHA required components. Additionally, PaySimple provides authorization form and telephone script samples, suggested invoice and office signage language, training materials for your staff, and education materials for your customers – to help all involved easily and comfortably transition to ACH processing. Ultimately, it’s up to the business to ensure that proper authorizations are obtained for all transactions. But that doesn’t mean that technology can’t make it easier. So, as a small business owner, take a look at the ACH payment processing system you are using and ask yourself:
- Is it helping my business operate more efficiently?
- Does it help me avoid common mistakes and pitfalls?
- Do its limitations put my business at risk?
If you don’t like the answers, its time to upgrade properly implemented ACH payment processing is a win-win for both your business and your customers. Doing it right is easy, with a little help from the right electronic payment processing solution.