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Whether it’s an entire ACH File or one ACH Entry, as an ODFI you should know that there are specific rules concerning Reversals. For reference, check out sections 2.8 and 2.9. of the ACH Rules. There are also specific rules for Same Day ACH Reversals, but first let’s discuss your internal processes and how you manage your clients’ corrections. Remember, Reversals are intended to correct an erroneous file/entry within five banking days. Reversals are not a tool your Originators may use to collect on a bad debt.
In your Origination agreement, or possibly within your term and conditions, you should designate which party is responsible for creating Reversals. Some ODFIs have controls in place to manage, or mitigate, the risk of improper use of Reversal requirements. However, on the other hand, some ODFIs allow their Originators and Third-Party Senders to manage their own corrections. Neither method is wrong. It is simply a business operation decision.
If your ODFI chooses to allow your Originators and Third-Party Senders to manage their own Reversals, ensure the Reversal file/entry is formatted correctly with “REVERSAL” in the company description field.
If your ODFI chooses to manage and create Reversal and/or correction files/entries on behalf of your customers, it is highly recommended to get documentation from authorized signer(s) with the details of the Reversal and the correcting entry. Auditors ask for this information as part of the auditing process.
Whether you create the Reversal or allow your ACH clients to create the Reversal, it is always a requirement to notify the Receiver of the Reversal and the reasoning behind it.
In those pesky cases when a payroll file must be reversed, the liability Reversal entries that are returned as Non-Sufficient Funds (NSF) or Account Closed is warranted by the ODFI. RDFIs may return an entry for any valid reason. In those scenarios, it could be a good practice to let the Originator and the Receiver resolve the issue outside of the ACH Network.
Remember, as we auditors like to say, “document, document, document!” Each time you send a reversing entry or file document who, what, when and why. Also, remember EPCOR is here to help if you have questions. Just call (800.500.0100), email ([email protected]) or chat with us on epcor.org.
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