Running a successful business requires constant vigilance when it comes to protecting your company’s assets. Corporate accounts must be safeguarded to the greatest extent possible when processing payments like automated clearing house (ACH) payments. Because we live in such a technologically advanced nation, ACH fraud is, unfortunately, more prevalent than ever. 

Risk of Accepting ACH Payments

For several years now, ACH payments have been a mainstay of bank and business transactions, enabling the electronic transfer of funds between financial institutions. The account and routing numbers are all you’ll need. New fraudulent practices are discovered and used to circumvent security clearances and steal time-sensitive information and abnormal activity from businesses as time passes and technology advances. It is essential to learn how to avoid ACH fraud and spot scams. 

 In 2020, the AFP’s Payment Fraud and Control Survey asked businesses to rate the frequency and severity of fraud. According to their findings, it’s critical to have payment technology security. The determination further showed that 81% of businesses had been the victims of payment fraud the year before. For the first time since 2009, companies have experienced an increase in the number of fraudulent transactions. 

Risks Of Accepting ACH Payments; Fraud And Failures

Knowing the Different Types of Fraud 

Failing to monitor ACH and wire payment activity can be costly for your business. While not all fraudulent activities are easy to detect, taking these preventative measures will ensure that your company’s finances are more secure. With only one business day to alert your bank to recover funds, ACH monitoring is paramount to securing your company’s financial information. 

Just as with credit card transactions, there are numerous types of fraud, and being aware of them is essential. Identity theft and payment fraud are the two most common types. An illegal or fictitious payment transaction is known as payment fraud, whereas identification fraud refers to the misuse or theft of a valid photo ID. 

On the other hand, fraud in electronic payments occurs within the company also. Unless companies exercise extreme caution, they put themselves in danger. State fraud regulations vary by industry, while federal fraud regulations and authorization processes are specific to the federal government. The fact that you’re conducting business across state lines means you may be subject to multiple laws.c 

Regulation violations can result in a revoked business license, hefty fines, and even civil or criminal penalties, so it’s critical to learn which regulations apply to your organization. Businesses that don’t know about government regulations run the risk of unknowingly allowing an illegal transaction to take place. Investigate a proven anti-fraud program to guard against these outcomes 

Systemic Risk 

Having large-dollar transactions with lots of capital puts financial institutions at risk of systemic failure. A series of transactions can create systemic risk, which is similar to credit risk. An account failure starts a chain reaction, and multiple parties or the entire system fail to settle accounts due to the loss. Fraud and human error are both sources of systemic risk. Still, in the case of an ACH transaction, the most common reasons for systemic failure are bankruptcy or financial difficulties of the party with the obligation to settle the account. 

Fraud Risk 

Customer data is at risk of being altered by bank employees who provide ACH payment facilities to embezzle money. Unauthorized employees gain access to protected data or additional registration requirements, audit requirements, accounting software providers, electronic terminals, or files and use it for their gain. Occasionally, non-employees misappropriate funds by hacking into a financial institution’s secure computer system and applicable account agreements. 

Operational Risk 

With ACH payments, you accept the inherent electronic risks and the risks associated with human error. A variety of operational risks can hamper ACH payments. ACH transactions are subject to several risks such as computer network outages and hardware and software problems, telecommunications outages and power outages, natural disasters such as fires or earthquakes, and staffing issues at the financial institution providing the service. Data loss, alteration, and duplication are examples of operational risks. 

Credit Risk 

ACH payment credit risk occurs when a party to a contract forgets to deposit the funds necessary to pay the contract’s balance. When a business incurs losses or goes bankrupt, this is what happens. The primary source of risk for the financial institution providing ACH transaction services is credit risk. 

Debit Risk 

Scammers steal account information and use it to make unauthorized withdrawals from the accounts of financial institution customers. This risk affects bank accounts, financial institutions as well as their customers. As a result of scammers stealing customers’ money, financial institutions suffer a tarnished reputation. 

Best ACH Fraud Prevention Steps to Take 

The security of ACH payments is a primary concern, just like those of other alternative payment methods. Being proactive in payment processing is essential if you want to keep your financial information secure. By implementing these measures and understanding the operating rules, you’ll reduce the security risks of ACH, and you’ll be able to recover any stolen funds you find missing more quickly. 

  • Use credit only accounts for issuing ACH and wire transactions. Allow no debits on this account.  
  • Know your vendors and be aware of any suspicious transactions on your account. 
  • Set limits and review periods on ACH/wire transfer transactions. 
  • Have the latest anti-virus and malware prevention programs running on your desktops where accounts for payments are processed. 
  • Never respond to emails, download programs, or open attachments from foreign or misspelled email addresses asking for business account information. 
  • Stay up-to-date on news topics concerning ACH and wire fraud and have regular discussions with your employees, customers, and banker.  

Understanding ACH returns 

Your accounts may be safe from unauthorized access, but that doesn’t mean your business is safe from refunds. Anyone in any organization can experience a return. Transparency is essential when it comes to safeguarding your business. This process will be more straightforward if you provide more information, plus there may be legal repercussions if you do not comply with the regulations. 

Returns can be issued for a variety of reasons, such as: 

  • Incorrect account information 
  • Insufficient funds 
  • Stop payments 

 The reasons apply to all payment types, including credit and debit cards, paper checks, and even programmable payments. The ACH Network allows for the return of entries in certain circumstances. The ACH return process, for instance, allows members of the ACH network to deny and return a transaction to the original host when it is not adequately verified or contains inaccurate or false information. It is possible to reduce the likelihood of receiving an ACH return code by adding more integrations. 

BNG Payments is payment processing made easy. Whatever your processing needs, we make it easy for merchants to accept credit and debit cards, mobile payments, e-commerce, and more. Contact us to find out more about what BNG Payments can do for your business.