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.
Learn more about ACH debit blocks, how they work, and their alternatives.
How ACH Debit Block Works
First, 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. 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 transfer money over to an investment account.
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 bank fraud management tool is implemented on a bank account, no one will be able to withdraw funds from a business 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
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 bank, file a police report, report the fraud to the FTC, 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, 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.
Recommended: How Long Does Direct Deposit Take?
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 a 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 automated service but focused on businesses, not consumers. It’s 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.
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.
Recommended: Understanding ACH Fees
The Takeaway
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.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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 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?
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, 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. While they can take up to three or four business days to clear, 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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Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
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