Many out of home companies take payment via Automated Clearing House (“ACH”) payments. You need to be aware of the risks associated with an ACH. Lafe Schneider of TDO outdoor tells Billboard Insider his company took a loss recently when a man who identified himself as Michael Bates (mbates1477@gmail.com) signed a large ad contract, overpaid via ACH by adding an extra zero to the payment, asked and received an immediate refund and then had the ACH unwound by the bank. In effect the man took back twice the contract amount from TDO. Billboard Insider talked to a banker to learn more about the risks of ACH transactions. You should talk to your company’s banker to make sure you know what their policy is.
On what conditions can a company unwind an ach?
A company can reverse an ACH anytime. If our customer originates the transaction, they have five business days to complete a reversal. If they are the receiver (assuming a business SEC-CCD, CTX), they have two business days to dispute/return the item. However, it does not mean the funds will be there to complete the reversal.
When an erroneous ACH goes through who is supposed to unwind it? The originating bank or the bank from which the money came?
The company that the money was debited from would have to complete a forgery affidavit and ask for the money to be put back, but if the money is not there when the bank sends the reversal then the company could be out the funds. It is best that the two parties communicate (if possible), typically the account owner/receiver wants to dispute the transaction, but it works if the originator can do a reversal too as long as time frames are honored, and they have the ability. There are times when the funds cannot be recovered.
If a company overpays an ACH to us should we direct them to have their bank unwind it to avoid this happening to us?
The originator may not have the capability to perform a reversal, in that case it’s necessary for the account owner to dispute the transaction. One way isn’t necessarily better than the other, it depends on timeframes, the relationship between the two parties and the permissions the originator has with their institution. Monitoring account activity, documentation and knowing who you are working with are important but that is for all payment types. In the above scenario, the amount is stated to be significant. Did the two parties go to court? That is an option when ACH solutions have been exhausted.
Billboard Insider’s Take: ACH transaction carry risks. Make sure you know your clients. We are calling this scam to your attention because it’s likely that the man who perpetuated this scam will try it on other out of home companies.
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That scam sounds the same as what almost happened to us and Mike at Flo Advertising – digital billboards Vegas last year in April. Brent wrote about it to warn the industry. Starts with wanting a large contract – then sends payment but overpays. In our case – a wire payment. We caught it and identified the scam before making any “refunds” to the scammer.
We recently had a transaction with the same Michael Bates who prepaid a $27,000 media contract, then said he had to cancel the order and asked us to refund the order less a cancelation fee. We told him we couldn’t issue a refund right away and would issue a refund within 30 days. He called to say it was urgent that we issue a refund. In a few days the ACH was reversed by him. The only notice I received was that the payment had been disputed through the payment processor (Intuit), not my bank (BA). The bank showed the deposit into your account and it looks as if it has cleared, but the payor can have up to 10 days to dispute the charge and have it reversed. In the end, we didn’t lose any money except the processing fee, in this case $419.43.
He tried this on us in New York.