Unlike the credit card realm, the ACH world lacks an authorization component. Essentially, a merchant knows they are getting paid at the point of sale because credit cards allow you to authorize at the time of payment that the customer has the requisite funds on their cards; thereby reserving those funds for capture and settlement.
So what is the ACH Verification Process?
The lack of the authorization present with credit cards leads some business to implement a Checking Account Verification system to mitigate payment acceptance risk. Without an ACH Verification System your new customer may require significant work to obtain correct or valid checking account information.
An ACH Verification Process helps merchants reduce risks associated with check acceptance at the point of sale, in person or online. Verification tools allow businesses to significantly reduce payment acceptance risk by validating the customer’s bank account in real-time.
Verification options range from negative databases and automated routing number checks to basically real-time inquiries into current account status and checking account balance inquiries.
How to verify a check is good?
Most third party entities that offer an ACH Verification Process include the most basic tools: routing account number validation and negative databases. The bank routing number identifies the bank the check is drawn against. The databases holding this information can be checked in real time. Negative databases exist as a history [both positive/negative] of checking account info. Many retailers contribute data to the network, but recency is an issue because the customer’s last written check at a participating retailer is the last data point. This means that data can be out of date.
The next level of the ACH Verification Process is an ATM network created data contributed by banks and Credit Unions. Daily uploads on account status are made to the network, and queries to the network can provide account insight. Check verification inquiries come with an almost immediate response. These responses can tell you:
- The account # is invalid
- The account is closed
- The account is in an NSF status: For some businesses this is important as they do they know they have a good account
- The account is non DDA eg Home Equity checks
Implementing a Checking Account Verification Service can dramatically reduce bad check acceptance and the workflow problems they create.