What You Need to Know About ACH Authorizations

Businesses are required to receive authorizations on all Automated Clearing House (ACH) transactions prior to collecting payment from their customers. If an authorization is not on file, the business could be held liable. This article covers the highlights for your business’s protection.

What is an ACH authorization?

First, an ACH transaction is an electronic payment that either credits or debits funds directly from a customer’s bank account in lieu of using a debit or credit card.

An ACH Authorization is a signed or similarly authenticated document by the customer granting permission to debit an account.

Authorizations are required anytime the business is debiting the customer account. They’re also recommended for crediting customers in case the originator ever has to do a reversal of funds.

Transactions that require authorizations:

• Recurring debits (such as rent or monthly services that are invoiced)
• One-time transactions (such as flooring installation)
• Until business ends - Let’s say, for example, you have a contract with someone for business “as needed” but it doesn’t occur on a regular frequency. Parties are required to retain authorizations two years from the end of the relationship.

What you need to know:

• A customer has the right to dispute any transaction as “unauthorized” or “outside of terms” potentially for three months.
• As your bank, we have the right to request a copy of authorizations at any time to help us reconcile a dispute.
• The originator is required to keep the authorization on file for two years after the customer relationship has ended.
• The business can be held liable if proof cannot be provided, which can include fines and termination of ACH Origination.

These requirements come from National Automated Clearinghouse Association also known as NACHA, but as your financial institution, we must ensure these practices are followed.

If you need additional information:

Nacha.org has a guidebook that you may obtain for free to learn more about the rules around authorizations. Here’s how to get your copy.

You may also contact our Business Development team at 877-695-8239 if you have questions.