What is an ACH debit block?

Understanding ACH debit blocks

Before we delve into the finer details of ACH debit blocks, it is worth taking the time to first define two important terms.

ACH payments

Automated Clearing House (ACH) is a payment method often described as a digital check or eCheck. Note that these are simply digital versions of once-commonplace paper checks.

Employees receive ACH payments from employers in the form of a salary, while employees may send ACH payments when they invest their money on a stock platform, pay their bills online or use P2P apps like PayPal.

These payments occur on the Automated Clearing House network, which was established in the 1970s to process large volumes of digital credit and debit transactions.

The ACH network is the preeminent network in the United States. In 2023, it processed 31.5 billion payments worth a collective $80.1 trillion.

Key data for the ACH network in 2023. Notice that debits comprised $17.7 billion or 56% of total payments (Source: Nacha)

Debit blocks

ACH payments are relatively secure in comparison to checks, but they are not immune from fraud. As a way for businesses to protect themselves from unauthorised account access, they can enable debit blocks.

The way a debit block works is simple: when enabled, funds will not be able to be withdrawn from the account via any payment attempts on the ACH network.

It is important to clarify that debit blocks prevent ACH debit transactions. These transactions are sometimes called a “pull” because the payee actively withdraws funds from the business’s bank account.

To implement an ACH debit block, the business needs to contact their bank and make formal arrangements.

The two types of ACH debit blocks

Full debit blocks

Where all debit transactions for all ACH use cases are prevented.

Partial debit blocks

Where most debit transactions are prevented. In this case, the business can pre-authorize certain payees to withdraw funds from their account. Partial debit blocks are sometimes called ACH filters because payees must meet specific criteria.

Note that a full debit block is rather restrictive in that it does not allow the business to use the funds in its account. Nevertheless, the measure is an effective way to thwart suspicious or fraudulent activity, even temporarily.

If possible, the business should also have an alternative payment method in place before implementing a full debit block.

Benefits of ACH debit blocks

ACH debit blocks are an effective way to prevent unauthorized ACH transactions in a business bank account. They’re also relatively simple to set up and remove if the needs of the business change.

Debit blocks also represent an additional layer of security if used proactively. Businesses that use debit blocks in this way prevent electronic fraud before it has a chance to occur.

However, in the above scenario, the business will need to contact their bank each time they want to authorize an ACH debit from their account.

Summary:

• ACH debit blocks are security features provided by banks to prevent unauthorized and/or fraudulent transactions in business bank accounts. Such transactions encompass any debits that occur on the ACH network.
• Businesses can implement either full or partial debit blocks. In the former, all debit transactions are prevented in the account. In the latter, the business can authorize certain entities to withdraw funds.
• ACH debit blocks have obvious benefits for security and fraud avoidance. However, some businesses may wish to take a proactive approach by implementing them before fraud has occurred.