ACH Prenotification

An ACH prenotification, usually shortened to prenote, is a zero-dollar test entry sent through the US Automated Clearing House network before an originator begins sending real credits or debits to a bank account. Its purpose is to confirm that the routing number and account number supplied by the customer are valid and that the account can accept ACH entries.

Prenotes are a long-standing, low-cost form of bank account verification. Employers use them before the first payroll direct deposit, and billers and lenders use them before the first debit. Under the Nacha Operating Rules they are optional, but if an originator chooses to send one, it must follow set rules about timing and responses.

A prenote travels exactly like a live ACH entry but carries an amount of zero and a special transaction code that marks it as a prenotification. For checking accounts, code 23 is used for a prenote ahead of credits and code 28 for a prenote ahead of debits; codes 33 and 38 play the same roles for savings accounts. The steps are:

1. The originator, or its payroll or payment provider, includes the prenote in an ACH file sent to its bank, the ODFI.
2. The ACH operator delivers the prenote to the customer's bank, the RDFI.
3. The RDFI checks whether the account number exists, is open and can take the kind of entry described. No money moves and nothing appears on the customer's statement.
4. If something is wrong, the RDFI responds with a return or a notification of change. If nothing comes back, the originator may treat the account details as valid.

If an originator sends a prenote, the Nacha Rules require it to wait at least three banking days after the prenote's settlement date before sending live entries to that account. This gives the RDFI time to respond. Older rules required a longer wait, and the shorter period has made prenotes more practical. Originators that receive a response must not send live entries until they have corrected the account details.

In practice, this means a new employee's first pay may go out by paper cheque, or the first debit may be delayed by several days, while the prenote is outstanding. Many payroll providers send prenotes automatically whenever an employee adds or changes bank details, and some lenders and billers do the same each time a customer updates an account. Because prenotes are free or cheap to send in most bank pricing schedules, they remain common in payroll even where faster checks exist.

• Returns. If the account cannot be found or the number is invalid, the RDFI sends back an ACH return with an ACH return code, typically R03 (no account or unable to locate account) or R04 (invalid account number). A closed account generates R02.
• Notifications of change. If the account exists but some details are outdated, such as a wrong account type or a routing number changed after a bank merger, the RDFI can send a notification of change with the corrected data. The originator must update its records within the time set by the rules.

Nacha rules require originators of consumer debits initiated over the internet to use commercially reasonable methods to detect fraud, including validating an account the first time it is used. A prenote is one accepted way to do this, alongside micro-deposits, which send small amounts that the customer must confirm, and instant account verification through open banking or data aggregation services. The account verification method chosen depends on speed and cost: a prenote is cheap and uses the existing network, but it takes days and only shows that the account is valid.

A prenote does not confirm who owns the account, so it cannot tell an originator whether the name given matches the account holder. A fraudster who supplies their own valid account details will pass. It also does not show whether funds are available for a debit, and many banks do not check the account in depth, so a prenote can pass while a later live debit fails. For these reasons, many fintechs and payment firms now prefer instant checks of account ownership verification, using prenotes as a fallback or for low-risk payroll uses. Prenotes also do not replace the requirement to hold a valid ACH authorization before debiting an account.

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