ACHQ Tutorial Series: SEC Codes and How to Authorize ACH

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:

1. If it was never authorized by the account holder or the authorization was revoked;
2. If it was processed on a date earlier than authorized; or
3. If it is for an amount different than authorized

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):

• PPD: Used for a one‐time or recurring business to consumer ACH transaction, for which you have written authorization‐‐Meaning a signed form or
• TEL: Used for a one‐time or recurring business to consumer, or business to business, ACH transaction that was authorized over the phone
• WEB: Used for a one‐time or recurring business to consumer, or business to business, ACH transaction that was authorized by submitting a form over the internet
• CCD: Used for a one‐time or recurring business to business ACH transaction, for which you have written (mail, email or fax) or telephone authorization or having a general written agreement/contract with the company for ACH debits to its account

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:

• Prearranged Payment and Deposit Entries (PPD): The merchant obtains written authorization to debit or credit a consumer
• Corporate Credit or Debit (CCD): The merchant Debits or Credits another business bank account (whether this is on paper, online, or over the phone, does not matter)
• Telephone-Initiated Entries (TEL): The merchant accepts authorization and payment information from a consumer over the telephone
• Internet-Initiated/Mobile Entries (WEB): The merchant accepts Debit transactions from a consumer on their website

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: Merchants at health and fitness centers can accept membership payments via authorization form.
• TEL: Merchants at collections agencies can accept authorization of payment over the phone.
• WEB: Merchants at online consumer lending businesses can accept repayment authorization online through a payment portal.
• CCD: Merchants at office property management and leasing businesses can accept rent payments via authorization form.

PPD TRANSACTION AUTHORIZATION GUIDE

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.

One‐time PPD Transaction Authorizations

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:

• Paying for a year of service in advance when a service contract is signed
• Making a major purchase such as furniture, art, or a used vehicle
• Placing an order for a product or service that will be billed in full on a future date

How to Authorize:

1. Have your customer sign and date a form that includes the amount of the payment, the date the payment is to be processed, and the bank account from which the payment is to be processed, and the bank account from which the payment is to be debited.
2. Keep this form on file, stored digitally or in paper form, for two years

Recurring PPD Transaction Authorizations

Typical Uses: There are three typical uses for recurring PPD transactions:

• Payments for the same amount on a regular schedule, such as weekly or monthly service fees
• Payments for a different amount on a regular schedule, such as utility bills and country club usage fees
• Payment plans for discharging a large debt, such as car loan payments and layaway payments

How to Authorize:

1. Have your customer sign and date a form that includes the bank account to be charged, how to terminate the schedule, and the information specified below for the type of recurring payment schedule being used:
   • Payments for the same amount on a regular schedule: Amount, frequency, and start date
   • Payments for a different (variable) amount on a regular schedule: Frequency, start date, not to exceed amount
   • Payment plans for discharging a large debt: Total due, # of payments, amount of payment, frequency, start date
2. Give your customer a copy of the signed form
3. Keep this form on file, stored digitally or on paper, for two years after the last payment on the schedule
4. Send a receipt via mail or email for each transaction processed as part of the schedule

TEL TRANSACTION AUTHORIZATION GUIDE

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

One‐time TEL Transaction Authorizations

Typical Uses: Phone order of goods and services, or for bill payments made via phone. For example:

• Purchasing an item from a catalog
• Paying a utility bill received via mail or email
• Making a deposit on goods or services to be delivered/performed at a later date
• Making a charitable donation

How to Authorize: There are two ways to authorize a TEL transaction, which may be used together or separately.

• Voice Recording
• Notify the caller that the call is being recorded
• Clearly state the particulars of the transaction—Use the following as a template:

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.

• Make certain that you hear the customer say “I Agree” Silence does not constitute authorization.
• Send an email receipt as described (Optional)
• Save the authorization tape for at least 90 days and up to 2 years (if you don’t send receipts).
• Email, Mail, or Fax Confirmation (You must prove the confirmation was sent, you’re not required to prove it was received)
• Send an email, fax, or mailed confirmation BEFORE the transaction is submitted to the bank
• Make sure the email contains the customer’s name, the last 4 digits of the bank account number, the transaction amount, the date it was authorized, the date it will be processed, and a number where the customer can contact you
• Keep a copy of the receipt on file (for emails, CC or BCC to your email address) for 2 years

Recurring TEL Transaction Authorizations

Typical Uses: Phone order of goods and services, or for bill payments made via phone. For example:

• Payments for the same amount on a regular schedule, such as weekly or monthly service fees (cleaning, day‐care, etc).
• Payments for a different amount on a regular schedule, such as utility bills and country club greens and other usage fees
• Payment plans for discharging a large debt, such as home remodeling or roof replacement

How to Authorize: There are two ways to authorize a recurring TEL transaction, which may be used together or separately.

Voice Recording

• Notify the caller that the call is being recorded
• Clearly state the particulars of the schedule which must include the following:
  • The Recurring Transaction Amount (or how the variable amount will be calculated)
  • The Date the Recurring Schedule was authorized
  • The schedule on which payments will be generated, including the start date and end date, if any.
  • Your Company Name
  • The Customer’s Bank Account that will be debited (At least bank name and last 4 digits of acct #)
  • A telephone number where your company may be contacted during regular business hours

  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.

  • • Make certain that you hear the customer say “I ” Silence does not constitute authorization.
    • Send an email receipt as described below
    • Have the tape of the authorization for 2 years after the last payment on the schedule is processed

    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.

    • • Send an email, fax, or mailed confirmation BEFORE the first scheduled transaction is submitted to be processedThe notification must include the following:
        • The Recurring Transaction Amount (or how the variable amount will be calculated)
        • The Date the Recurring Schedule was authorized
        • The schedule on which payments will be generated, including the start date and end date, if any.
        • Your Company Name
        • The Customer’s Bank Account that will be debited (At least bank name and last 4 digits of acct #)
        • A telephone number where your company may be contacted during regular business hours
        • An email address that is monitored during regular business hours
        • Keep a copy of the receipt on file (for emails, CC to your email address) for 2 years after the last payment on the schedule is processed

        You are also required to send an email confirmation for any change to a recurring ACH schedule if the authorized payment amount, payment account, frequency, start date or end date changes. This confirmation must be sent PRIOR to the changed payment amount being processed‐‐ even if the amount is lower than the originally authorized amount.

        WEB TRANSACTION AUTHORIZATION GUIDE

        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.

        One‐time WEB Transaction Authorization Guide

        Typical Uses: Online orders for good or services, or online bill payments. For example:

        • Purchasing an item from an online store
        • Paying rent
        • Making a charitable donation

        How to Authorize:

        1. 1. Include NACHA mandated language in the terms and conditions section
           1. 1. Enable your customer to view and print a receipt after the payment has been successfully submitted
              1. 1. Email a receipt to your customer, CC yourself, and keep a copy of the email for 2 years

                 Sample Language for Authorizing One‐time ACH WEB Transactions

                 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.

                 Recurring WEB Transaction Authorization Guide

                 Typical Uses: Web Payment pages support two types of recurring transactions:

                 • Recurring Billing for the same amount on a regular schedule, such as weekly service fees or monthly charitable donation
                 • Payment Plans for discharging a large debt, such as car loan payments or installment payments on a large purchase

                 How to Authorize:

                 • • Include NACHA mandated language in the Terms and Conditions
                   • Enable your customer to view and print a receipt immediately after submitting the payment form that contains:
                     • Full details of the schedule (payment amount, frequency, start date, end date or # of payments).
                     • A confirmation # for any transaction processed as part of the schedule when it was

                     Sample Language for Authorizing Recurring ACH WEB 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.

                     CCD TRANSACTION AUTHORIZATION GUIDE

                     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.

                     How to Authorize:

                     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.

                     1. Use Overriding Agreement
                     • • there is no specific authorization form that must be used, but the clients must be in agreement on how the billing will take place and how any dispute resolutions are handled.
                       • One‐time transactions or recurring schedules can be authorized in writing, by phone, fax, or
                       • Keep a copy of the agreement and authorizations for 2 years after the last transaction is
                       1. One‐time Written Authorization
                       • • Have your B2B customer sign and date a transaction authorization (template below) or include similar language in the terms and conditions of your contract that indicates:
                           • Payment amount and
                           • Bank information for account to be
                           • Statement that bank account is enabled for
                           • Agreement to be bound by NACHA operating

                           3. Recurring Schedule Written Authorization

                           • • Have your B2B customer sign and date a transaction authorization (or include similar language in the terms and conditions of your contract that indicates:
                               • Payment amount
                               • Bank information for account
                               • Statement that bank account is enabled for ACH
                               • Agreement to be bound by NACHA operating rules
                               • Keep a copy of the authorization for 2 years

                               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.