I was asked to find out a cheaper way to return a substitute check. We currently due it by printing out the check and sending it in paper format. The shipping charges can add up. Is there any way we can return a substitute check electronically through an ACH? Also, can we just return it to the bank that it is drawn on or do we have to send it back to the business that deposited it?

You should be the bank it is drawn on if it is being returned. It must be returned to the BOFD (Bank of First Deposit). And yes, there are ways to electronically return a substitute check. You would need to check with Fed or another vendor (maybe your core service provider) to evaluate costs, ie software, etc.

Georgia Plum...just for my own confirmation...if we are the BOFD, we have to return the physical substitute check to our customer (who deposited it in their account) along with the Check 21 disclosure, correct?

Strange as it may seem, if the SC is bounced by the paying bank to you as depositary bank, there's nothing other than precedent and perhaps state law (doubtful) or your own deposit contract that requires you to return the item to your depositor. You do have to notify your customer of the dishonor of the check (Reg CC and UCC requirements) within a midnight deadline. That notice need not be in hard copy written form.

And if you determine that you need/want to return the item, you can return a copy of the SC rather than the SC itself.