An ACH Chargeback occurs when an ACH transaction (either a debit or a credit) is returned by the receiving financial institution.
This typically happens when there is an issue with the original transaction, such as insufficient funds in the payer’s account, a closed or invalid account, or a dispute over the authorization of the transaction. In such cases, the transaction is sent back through the ACH network to the originating financial institution, which must then resolve the issue.
Like chargebacks in the credit card world, ACH chargebacks can be a source of operational challenges for businesses. They can lead to financial losses due to reversed transactions, administrative costs for handling chargebacks, and potential damage to customer relationships.
It’s crucial for businesses to implement procedures and controls to minimize the risk of ACH chargebacks, such as verifying customer account information, obtaining proper authorization for transactions, and promptly addressing any disputes or issues raised by customers.