Obtaining the proper authorization for your ACH transactions is the most important step you can take to protect yourself against disputes, return fees, and reversed transactions.
According to NACHA (the organization that oversees the Automated Clearing House (ACH) network) rules, there are only three reasons people can dispute ACH charges to their account:
NOTE: The transaction must be for the exact amount authorized—it cannot be higher or lower. However, you are permitted to have customers authorize payments for variable amounts, and/or not to exceed amounts.
That’s it. And, disputing an ACH charge requires that the account holder provide notice to the bank in writing (or the electronic equivalent) that one of those three conditions exists. (Note that this is significantly different from credit card transactions where a customer can have a charge reversed simply by claiming that the product or service received was not what they expected.)
The key word is Authorized—which according to NACHA means something very specific depending on the ACH Type used to submit the transaction. ACHQ supports the following ACH Types (though your account many not be enabled for all of them):
You must fulfill the authorization requirements for the ACH Type submitted, or your customer can have the charge reversed. For example, if your customer calls to place an order over the phone, and you process it as a PPD transaction instead of a TEL transaction, your customer can claim that the transaction was not authorized and have it reversed.
A Primer to SEC Codes
Before we dive into the details of SEC codes, let’s quickly review the key players involved in ACH. First off, NACHA is the regulatory body governing the ACH network. Next, there are ODFIs (Originating Depository Financial Institutions) and RDFIs (Receiving Depository Financial Institutions). An ODFI is a financial institution in which the ACH transaction starts or originates from (e.g., ACHQ’s bank), while an RDFI is an institution that receives the ACH transaction (e.g., your customer’s bank). Similarly, the Originator is the party that originates an ACH transaction, and the Receiver is the party that receives the transaction. Finally, when an ACH transaction is submitted, it becomes an ACH Entry.
ACH transactions are categorized by how you capture authorization from the Receiver (the person whose bank account is being debited or credited). The four most common SEC codes are:
Why are SEC Codes Important?
NACHA requires that merchants obtain the consumer’s explicit authorization before initiating a transaction. To stay compliant, you’ll need to make sure that you retain a compliant authorization for each transaction that you originate to the ACH Network). You will need to use proper authorization language and be able to accurately demonstrate that an authorization occurred for each ACH transaction (see NACHA Rules for additional detail).
Here are a few examples that illustrate how authorization works for different industries that use popular SEC codes:
PPD transactions are by definition those that are authorized in writing on a form or contract that grants a business permission to debit a consumer’s personal checking or savings account. The authorization form outlines the conditions under which the business is permitted to debit the account (such as amount, date, and frequency), as well as conditions for termination or change of the authorization.
Typical Uses: One‐time PPD transactions are often used as part of a contract when a customer is making a single payment for products or services rendered. For example:
Typical Uses: There are three typical uses for recurring PPD transactions:
TEL transactions are by definition those that are authorized over the telephone granting a business permission to debit a consumer’s personal checking or savings account. NACHA permits these transactions if the customer initiates the call, or if the merchant initiates the call and there is a pre‐existing relationship between the customer and the merchant (a contract in place, or the customer has done business with the merchant in the last 2 years).
TEL transactions are used when a merchant obtains the bank account information and permission to charge the account from a customer over the phone
Typical Uses: Phone order of goods and services, or for bill payments made via phone. For example:
How to Authorize: There are two ways to authorize a TEL transaction, which may be used together or separately.
I want to confirm that today you are authorizing to initiate a one‐time ACH debit from your bank account for on . If you have any questions about this debit you can reach us at . Please say “I agree” to authorize this transaction.
Typical Uses: Phone order of goods and services, or for bill payments made via phone. For example:
How to Authorize: There are two ways to authorize a recurring TEL transaction, which may be used together or separately.
Use the following as a template:
I want to confirm that today you are authorizing to initiate a recurring ACH debit from your bank account ending in for on i.e. the 15th of each month> starting on and ending on If you have any questions about this schedule, or if you would like to cancel or change the schedule, you can reach us at . Please say “I agree” to authorize this transaction.
Email, Mail, or Fax Confirmation (You must prove the confirmation was sent, you are not required to prove it was )
NOTE: Even if you are not recording the conversation, you should use the sample call script above to ensure that you are providing all required information to the customer when they authorize an ACH schedule over the phone.
WEB transactions are by definition those that are authorized by a consumer entering payment information into a web form, actively checking a box to agree to the terms and conditions for the transaction (pre‐checked boxes are not allowed), and clicking a “Submit” button.
WEB authorization can be used to enable your customers to initiate a one‐time transaction or a recurring payment schedule via a ACHQ Web Payment Page, or a one‐time payment via an online invoice payment form.
Additionally, if you host a payment or payment schedule authorization form on your website, separate from the ACHQ system, and then manually enter the schedules authorized via this form into ACHQ, you should select WEB as the ACH Type for the transaction or schedule.
Typical Uses: Online orders for good or services, or online bill payments. For example:
When configuring your Web Payment Page add the following text to the Terms and Conditions field. When entering Terms of Sale for your invoices include the following text. Be sure to use this text in addition to your company’s standard terms and conditions for both fields.
Enter your business information in place of the placeholders below:
I authorize to debit the bank account indicated in this web form for the noted amount on today’s date. I understand that because this is an electronic transaction, these funds may be withdrawn from my account as soon as the above noted transaction date. In the case of an ACH Transaction being rejected for Non Sufficient Funds (NSF) I understand that the business may at its discretion attempt to process the charge again within 30 days, and agree to an additional charge for each attempt returned NSF which will be initiated as a separate transaction from the authorized payment. I acknowledge that the origination of ACH transactions to my account must comply with the provisions of U.S. law. I will not dispute debiting my checking/savings account, so long as the transaction corresponds to the terms indicated in this web form.
NOTE: If you do not want to charge a NSF fee, you can delete this portion of the sample text.
Typical Uses: Web Payment pages support two types of recurring transactions:
When configuring your Web Payment Page, add the following text to the Terms and Conditions field, in addition to your company’s standard terms and conditions. Enter your business information in place of the placeholders:
I authorize to debit the bank account indicated in this web form for the noted amount on the schedule indicated. I understand that this authorization will remain in effect until the schedule end date, or until I cancel it in writing, which ever comes first, and I agree to notify the business in writing of any changes in my account information or termination of this authorization at least 15 days prior to the next billing date. If the above noted payment date falls on a weekend or holiday, I understand that the payment may be executed on the next business day. I understand that because this is an electronic transaction, these funds may be withdrawn from my account each period as soon as the above noted transaction date. In the case of an ACH Transaction being rejected for Non Sufficient Funds (NSF) I understand that the business may at its discretion attempt to process the charge again within 30 days, and agree to an additional charge for each attempt returned NSF which will be initiated as a separate transaction from the authorized recurring payment. I acknowledge that the origination of ACH transactions to my account must comply with the provisions of U.S. law. I will not dispute ’s recurring billing with my bank so long as the transaction corresponds to the terms indicated in this agreement.
NOTE: If you do not want to charge a NSF fee, you can delete this portion of the sample text.
The CCD transaction type is used for permitting electronic debits between businesses. (Paper checks cannot be processed using the CCD code.) The major difference between CCD transactions and business‐to‐consumer (B2C) transactions is the amount of time after the transaction in which it can be disputed. For the B2C codes (PPD, TEL, and WEB) the customer has 60 days to dispute. For CCD it is only 3 days. Thus, if you are billing another business, it is to your advantage to enter the transaction as CCD.
To use the CCD code you must have a signed agreement in place with your business‐to‐business (B2B) customer stating that it agrees to allow you to debit its account. This can be a separate overriding agreement covering all transactions for one or more bank accounts, or it can be included in a one‐time or recurring ACH authorization. It can also be included in terms and conditions of any contract you have with your B2B customer.
3. Recurring Schedule Written Authorization
If you don’t have a written agreement with the company for CCD, you can process one‐time telephone transactions using the TEL code (See TEL Transaction Authorization Guide above), or one‐time and recurring Internet transactions using the WEB code (See One‐time WEB Transaction Authorization Guide and Recurring WEB Transaction Authorization Guide). Just be sure you have confirmed that the bank account has been enabled for ACH. If you do this, the business will have the same 60 days to dispute the charge as a consumer would.