How to Manage NSF, Chargebacks and Unauthorized Returns

Accepting credit cards as payment in your daily business transactions has many obvious advantages: You can increase your revenue and your customer base, add convenience and improve productivity.

With that said, you have likely experienced how confusing the world of card processing can be. While the process, over time, can become relatively easy to navigate around, there are several important aspects about merchant accounts you need to understand.


Any business that accepts card transactions today is vulnerable to chargebacks, otherwise known as disputed transactions. The idea is that when a dispute is made, the card issuer reverses the transaction and the customer receives his or her money back. However, too many chargebacks can break a business’s bottom line and reputation among card merchants and processors.

Typically, fraud is a common cause of chargeback. Why? When a customer’s card is fraudulently used for a transaction, the merchant is held responsible. Thus, it is up to you, the business owner, to ensure that the card used in the transaction has not been stolen.

The best way to deal with chargebacks is to try to avoid them. This means proactively protecting your business from potential fraudsters and malicious buyers. Prevention efforts require a combination of documentation of everything sales-related and providing excellent customer service.


Receiving a non-sufficient funds (NSF) check is typically a situation out of any organization’s control – that is, unless you decide that you will not accept them at all.

Having a well-developed company-wide financial policy can aid in minimizing the number of NSF checks you receive. For example, if you have clear, upfront collection policy, you can rest assured that most of your customers have been informed in advance of their financial responsibility, which ultimately makes them better prepared to make payments.

Let’s say you have taken all the precautions to prevent an NSF check and one still slips through. Understand that you have options. First, reach out to the customer. Most likely, they will know before you do that they have a bounced check. Request that they resolve the matter as soon as possible, and consider offering to waive the NSF fee if they make the payment. You should also contact the bank to find out if there is enough money to cover the check. If so, return the check to the bank and have it cashed (versus depositing it in your account). Finally, if you still have no luck, it’s time to forward the account to a collection agency for back-up support.

Unauthorized Returns

As of Sept. 18, 2015, the new unauthorized threshold per originator rule went into effect, reducing the allowable percentage from 1 percent to 0.5 percent. Just like in the previous rules, when an originator has exceeded the unauthorized threshold, NACHA will contact the ODFI and require a plan to be implemented to reduce the unauthorized return rate below the threshold for at least 180 days.

Here are a few tips for reducing unauthorized returns:

  • If you submit multiple payments on one specific day for the same customer, the chance of each of them returning is high. Try submitting the payments on different days.
  • Resubmission of entries to closed (R02)/invalid accounts (R03/R04). If a return is received with one of these codes, then you should make sure that a new transaction does not go out until new banking information is received.
  • One strategy to reduce return rates is to stop the resubmission of NSF entries. When an NSF return is collected, you should contact the receiver directly to advise that the entry was returned NSF, and schedule a new ACH entry, ensure the account is properly funded. Or, contact the receiver directly to advise that the entry was returned NSF, and instead take an alternative payment, like a debit/credit card or money order.

BillingTree offers numerous resources to help merchants become better equipped to handle NSF, chargebacks and unauthorized returns. Contact us today to learn more.