An ACH debit block is a fraud protection tool: Companies can opt into it to prevent any ACH debits and credits from their bank account. If you suspect that your business is a victim of fraud, an ACH debit block is an easy way to protect your money until you’ve resolved the issue. It can also be a good general practice to discourage unauthorized debits.
In this guide, you’ll learn:
• What ACH blocks are and how they work
• The benefits of an ACH debit block for small businesses and enterprise companies
• An alternative solution to ACH debit blocks
How ACH Debit Block Works
Before you dive into how an ACH debit block works, it’s important to understand some of the basic concepts related to this process, such as the ACH system in general 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 into 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 yourself. For example, you might be using ACH when you utilize peer-to-peer payment apps like Venmo, pay your bills online, digitally file and pay your income taxes, or even transfer money over to an investment account like SoFi Invest.
What Is a Debit Block?
Businesses use ACH payments as well, to collect funds and pay expenses. But these can be a target for criminal activity. Scammers can try to pull funds out of your bank account without your approval. 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 would impede your company from being able to use the funds in the account in all ACH use cases. It’s important to understand the ramifications of a debit block — and 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 fraud management tool is implemented on a bank account, no one will be able to 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 all future payments with paper or electronic checks, debit cards, credit cards, cash, or wire transfers.
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Benefits of ACH Debit Block
ACH debit blocks can make payments difficult, so why would your business ever get one? It’s all about fraud — and not wanting to be a victim. 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.
An ACH debit block is just one fraud tool available to businesses. Other actions to take if you believe your bank account has been compromised might include contacting business credit bureaus and filing a report with the Federal Trade Commission (FTC).
Individual consumers who are victims of identity theft can also do more than contact their bank. If you believe your identity has been stolen, other steps to consider include filing a police report, reporting the fraud to the FTC, notifying the consumer credit bureaus, and contacting your 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, some companies — those 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.
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Setting Up an ACH Debit Block
Setting up an ACH debit block is easier than setting up direct deposit. Just call your bank, provide your credentials, and request that they set up debit block immediately. If you are doing this in response to fraudulent account activity, 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 over the phone 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 ACH filter that allows you to create a list of payees or vendors 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 any other individuals or businesses attempt an ACH withdrawal from your account, you will receive an alert. You can then review the request and approve or deny the ACH transfer.
Positive pay is more hands-on than ACH debit block but can be helpful if you have a list of recurring ACH payments. Positive pay may also be useful because it allows your company to review any unauthorized requests instead of having your bank flat-out reject them without a review, as with ACH debit block.
Worth noting: Because each bank’s offering is different, there might sometimes be an 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.
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ACH debit blocks are 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. Our online banking app is a fee-free option. You’ll earn a competitive APY and get early access to your paycheck. We also offer several security and fraud protection features, including in-app debit card freezes, suspicious activity monitoring, chip card technology, travel notices, and two-factor authentication.
Can ACH payments be blocked?
A business can block ACH payments with a feature called 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?
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, set up positive pay, allowing only approved payments to go through. For your personal accounts, you may be able to set up alerts every time an ACH debit occurs in your account. If you notice any unauthorized activity, report it to your bank immediately.
What happens if an ACH transfer fails?
If the initial ACH transfer is not processed, some companies may attempt it a second time. Ultimately, if the ACH debit from your personal account fails, the business expecting the funds can hold you responsible for additional fees, such as late fees. If a bill continues to go unpaid, the company may send it to a collection agency, which will likely have a negative impact on your credit score.
How long does an ACH payment take to clear?
ACH payments are not immediate. In fact, they can take up to three or four business days. However, many banks have moved to next-day ACH transactions, which could mean funds are transferred in just one or two business days.
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