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“Form”-ing good ACH compliance habits starts with forms

Even though many payments today are made electronically, the initial setup of these transactions usually requires a physical signature on an actual piece of paper. This is especially true for ACH originators, many of whom use ACH transactions to pay their employees via direct deposit, collect from customers with a preauthorized ACH debit, or pay their vendors with ACH credits.

Signing FormPrior to performing any ACH transaction, an ACH originator needs some form of authorization from the other party. The NACHA rules that govern ACH transactions require that the originator agree to perform this function prior to initiating an ACH transaction.

Regardless of whether a business is collecting their ACH authorizations online (via a web form) or on paper, there are a few things to keep in mind when “form”-ing your authorization forms.

Balance the ease-of-use with what makes you comfortable

Years ago, it wasn’t uncommon for businesses to require—as part of their ACH authorization—that the other party supply a copy of a voided check. Technically, this is still a recommended best practice, but it’s certainly not required. And, if we’re being honest, a decent number of consumers these days don’t exactly carry around a checkbook, which makes supplying a voided check a bit of a chore for them.

If removing the voided check from your ACH authorization process makes you uneasy, a good alternative is to request that the company (or individual) supply a bank letter (on bank letterhead) certifying the account name and account number. Most financial institutions have these types of letters already saved in a template, and they can be generated rather quickly.

Leave yourself some wiggle room

So, what happens when you accidentally add an extra zero to the last payment you ACH’ed to Sketchy Scratch Pads, LLC in California? You try calling them, but they won’t return your phone calls. What do you do?

When you create your ACH authorization form, it’s important to give yourself some flexibility. Usually, this involves some sort of language that permits you to debit/credit the account in the event that you accidentally overpaid/underpaid. This type of correction is referred to as a “reversal,” and it’s not uncommon for authorization forms to include language that permits these types of corrections.

Hold onto those files!

Once you receive the signed ACH authorization form back, make a point to hang onto it. The NACHA rules that govern ACH transactions actually require that you keep copies of ACH authorization forms for at least two years after the authorization is cancelled. So, you’ll want to develop an organized filing system that helps you locate (and eventually destroy) old authorization forms.

Don’t reinvent the wheel

If you’re not sure where to start with creating your forms, you can find some good samples on the Internet. A quick Google search will turn up a few promising results. If you don’t want to mess with an Internet search, you can find Central National Bank’s sample forms linked at the bottom of this post.

So, start forming good ACH authorization habits today. You’ll be glad you did.

Sample ACH Forms:

 

Bryan is a treasury management specialist and the director of marketing at Central National Bank. He enjoys running, reading (anything by Malcolm Gladwell), binge-watching House of Cards on Netflix, volunteering and playing the trumpet.

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