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An Automated Clearing House (ACH) debit block is a fraud protection tool that companies can opt into to prevent any ACH debit transactions from going through. If you suspect that your business is a victim of fraud, an ACH debit block is one way you can protect your money until you’ve resolved the issue. It can also be a good general practice to discourage unauthorized debits.
Learn more about ACH debit blocks, how they work, and their alternatives.
Key Points
• An ACH debit block prevents any electronic ACH withdrawals from a business bank account.
• These blocks help reduce the risk of unauthorized debits and electronic payment fraud.
• You can contact your bank to authorize specific ACH payments if a block is in place.
• ACH debit blocks can be used after suspected fraud or proactively for added security.
• Alternative debit payment methods, such as positive pay, allow businesses to approve specific vendors while blocking others.
How ACH Debit Block Works
It’s important to first understand some of the basic concepts related to this process, such as the ACH system and debit blocks.
What Is ACH?
ACH (Automated Clearing House) is a common payment method that works like a digital check, transferring money from one bank account to another. A common example of an ACH transfer is a direct deposit from an employer into an employee’s checking account.
As an individual consumer, you may also make ACH payments. For example, you might use ACH with peer-to-peer payment apps, such as Venmo, pay your bills online, digitally file and pay your income taxes, or transfer money over to an investment account.
What Is a Debit Block?
Businesses also use ACH payments, typically to collect funds and pay expenses. However, these transactions can be targets of criminal activity, and scammers can use them to try to steal your funds. If you want to prevent money from leaving a business account via ACH because of this potential risk, an ACH debit block might be a good move.
When enabled, a debit block prevents your company from using the funds in the account for all ACH use cases. It’s important to understand the ramifications of a debit block — you may want to only request one from your bank if your company has alternative methods (or accounts) for making payments.
How Does an ACH Debit Block Work?
An ACH debit block is very straightforward. When this bank fraud management tool is implemented on a bank account, no one can withdraw funds from the account via ACH.
If you have a debit block on a business account and need to make an ACH payment from that account, you’ll need to take action to make sure it goes through. It’s important to contact your bank to authorize that specific payment before the payment recipient begins the ACH debit process. Otherwise, you will need to make future payments through other methods, such as paper or electronic checks, debit cards, credit cards, cash, or wire transfers.
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Benefits of ACH Debit Block
Here’s a closer look at the advantages of using an ACH debit block.
Reduces Electronic Payment Fraud
One reason to enact an ACH block on a business account is if you suspect your account has been compromised. An ACH debit block can prevent fraudsters from being able to debit money electronically from an account.
Individual consumers who are victims of identity theft can contact their banks, file police reports, report the fraud to the Federal Trade Commission, notify the consumer credit bureaus, and contact their creditors.
Offers an Additional Security Layer
Debit blocks are sometimes a reactive solution. That is, once a business suspects fraud, they can contact their bank to implement an ACH debit block on the account.
However, companies that don’t need to make electronic payments from a specific business account may prefer to proactively set up a debit block as an additional security layer.
If you do so, just understand that you’ll need to contact your bank every time you want to authorize an electronic payment from your account.
Recommended: How Long Does Direct Deposit Take?
Setting Up an ACH Debit Block
Setting up an ACH debit block can be simpler than setting up direct deposit. Just contact your bank to create an agreement on how to authorize and process your transactions. If you are doing this in response to fraudulent account activity, you can mention that on the call to determine what additional steps you should take.
Removing the debit block or authorizing a one-time payment will follow the same process. Contact your bank and explain exactly what you need.
Positive Pay vs ACH Debit Block
While an ACH debit block can be a good way to protect your business checking account, it does have its drawbacks. As an alternative, you may be able to implement positive pay.
Positive pay is an automated service focused on businesses, not consumers. It’s an ACH filter that allows you to create a list of check numbers and amounts that will be automatically approved when they initiate an ACH debit from your company’s account. Certain criteria for these funds transfers can also be established. For example, you might put a cap on how much they can debit in a single transaction.
If the check numbers and amounts don’t match what’s been put on record, the transaction will be flagged or rejected.
It’s worth noting that because each bank’s offering is different, there might be overlap between a debit block and positive pay. Some banks, for example, allow you to review and approve vendor payments when you have an ACH debit block enabled. It’s a good idea to evaluate whether your current banking solution offers fraud prevention tools that fit your business or personal needs.
Recommended: Understanding ACH Fees
The Takeaway
Setting up an ACH debit block is a secure way to prevent fraudulent electronic transfers from your company’s bank account. If you suspect that your bank account information has been compromised, contact your bank to initiate an ACH debit block and ask what other fraud prevention resources they can provide.
When thinking about your bank’s security, don’t forget about your personal accounts. SoFi is one great option to keep your money safe.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Can ACH payments be blocked?
A business can block ACH payments by setting up an ACH debit block. This prevents anyone from electronically withdrawing money from its bank account. You may also be able to set up positive pay, which allows you to approve a list of electronic payments and review all other ACH requests.
How do I stop unauthorized ACH payments?
You can set up an ACH debit block (typically, this is for business accounts) to prevent any electronic withdrawals from an account. If you want to allow expected ACH payments to process uninterrupted, you can set up positive pay, allowing only approved payments to go through. For personal accounts, you may be able to set up alerts for every ACH debit, so if you notice any unauthorized activity, you can report it to your bank immediately.
What happens if an ACH transfer fails?
If an ACH transfer is not processed, the transaction will be returned for nonpayment. When an ACH return occurs, it often has a processing fee that falls on the consumer to pay.
How long does an ACH payment take to clear?
ACH payments are not immediate. While they can go through quickly, sometimes even on the same business day they are initiated, they may take longer because of how they are processed to protect against fraud.
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