echeck payments

A Complete Guide to eCheck Payments

August 5, 2022

Cash has been mainly replaced by credit and debit cards, not only because of the convenience they give but also because there has been a considerable increase in online shopping and online services. More than 80% of Americans now make online payments, and the number of people receiving paychecks from vendors is also increasing. This is where electronic checks (eChecks) enter the picture. 

The word “eCheck,” which might have come up in conversation at some point or another, refers to another common but less publicized type of electronic payment.This comprehensive article will delve into every aspect of eCheck payments to provide you with all the information you could possibly need.

What Is an eCheck?

An electronic check (eCheck) is a payment that is made electronically using a checking account. It’s an electronic replica of your paper check.

The purpose of eChecks is to be compatible with current banking norms and procedures. When a customer uses an eCheck to make a purchase, money is transferred via the Automated Clearing House Network to the merchant’s company bank account. This reduces the number of manual procedures required to receive payment and deposits funds into your account more quickly. 

How Does eCheck Work?

The Check Clearing for the 21st Century Act, also known as “Check 21,” was signed into law on October 28, 2003. By removing the legal restrictions that stopped many banks from using check truncation, this federal law greatly enhanced the use of electronic check processing. 

In a standard check payment, one bank confirms a physical check and sends it to the other bank involved in the transaction, and that bank also verifies the physical check. 

The data required for payment processing is the same regardless of how much faster eCheck processing is than traditional check processing. Your customer must begin an electronic check by providing their account number, bank routing information, and authorization, which would also be included on a paper check.

While no limitations stop businesses from accepting physical checks, eCheck payment processing must be enabled for businesses to accept this form of payment. 

The entire eCheck payment process can be broken down into four distinct steps, all of which are pretty straightforward:

  1. Authorization: The merchant needs the customer’s consent to proceed with the transaction at this point. This stage is often handled by the payment request system of an online payment processor, where the customer can easily approve the transaction with the click of a button. Nevertheless, eCheck authorization can be accomplished via a contract, online form, or even over the phone. 
  1. Processing: As soon as the authorization is granted, the payment processor can start the process of transferring the money between the customer and the merchant. Since the amount is usually pre-determined in the solution, this step is essentially unnecessary after authorization. This procedure is also easier when you use an online payment processor. The merchant will require a manual entry of the payment and the correct account information into an online form if there are no online payment options available.
  1. Finalize: Your processor checks the credentials once you have provided all the necessary information. The Automated Clearing House (ACH) Network transfers the money after verification. While eChecks are handled over the ACH Network, it’s crucial to remember that ACH payments and eCheck payments are distinct due to their various fees and processing methods. 

It’s also important to note that many POS systems can be integrated to seamlessly transfer the data your customer submits online or in an app to your virtual eCheck terminal, thus removing the need for you to re-enter this data.

  1. Funds Deposit: This last step involves depositing the customer’s money into the merchant’s bank account (after the transaction was successful). The eCheck transaction is now complete! Normally, a written or electronic receipt is sent to both parties as confirmation of the transaction.

Difference Between ACH Payments and eCheck Payments

Although they are relatively similar in many aspects, ACH payments and eCheck payments differ in that ACH payments necessitate approval for an ACH merchant account. Funds remain unclaimed in your ACH merchant account until settlement, thus causing a snag in your cash flow. Additionally, rigorous business analysis is needed for approval of an ACH merchant account, during which many companies are turned down.

However, using an eCheck payment processor allows businesses that don’t fit the criteria for an ACH merchant account to still accept payments into their business bank account without needing a merchant account.

How Are Paper Checks Different from eChecks?

The primary difference between an eCheck and a paper check is that the former is digital, whereas the other is printed on paper. They are both different formats of the same information. 

Since eChecks are processed digitally rather than physically, they process payments far more quickly than paper checks, which accelerates the approval process in general.

Paper checks need more manual labor than electronic checks to deposit, and they also take longer to process and hold than eChecks. 

Advantages of eCheck Over Credit Card

There are various benefits to accepting eChecks rather than credit cards because they bypass card networks, use their own systems, and adhere to their own rules. eCheck can:

  • Reduce processing cost (and it may also be lower than debit cards)
  • Change the payment option for your regular customers to one that is less expensive.
  • Lower the number of declined recurring payments caused by expired card information.
  • Make it more difficult to file customer chargebacks.
  • Provide a shorter time frame for customers to start chargebacks
  • Extend your reach to people who either can’t or won’t use credit cards
  • Offer an alternative payment option that your competition might not offer.

How to Deposit an eCheck

Depositing electronic checks is easy because they are primarily virtual versions of paper checks. Usually, your eCheck service provider will give you access to a virtual terminal where you may enter the check’s information to start the transaction. Simply follow the same steps you would for any digital payment. The only way this payment differs from others is that, rather than going through your merchant account, the money will be sent straight to your business bank account.

Additionally, if your POS system and eCheck payment processor are integrated, you might immediately cash your customers’ eChecks with little to no work on your end. 

Other Ways to Deposit an eCheck

Using the aforementioned procedure, an eCheck can be processed and automatically deposited into your company’s bank account. However, you can also use the following process to deposit an eCheck: 

  • Retrieve your eCheck: When you are informed that you have received an eCheck, you can retrieve it by adhering to the provided steps. 
  • Printing your eCheck: Print out your eCheck after retrieving it. An eCheck may also be printed into a physical copy, just like digital tickets for concerts, flights, or other events can be. 
  • Deposit your eCheck: You can proceed as you would with a standard check when you use the physical version of your electronic check. All you have to do is to sign the check and deposit it in your bank. 

Can an eCheck Bounce?

The customer’s checking account often has an authorization hold in the amount of the eCheck placed on it when an electronic check is launched. By doing this, it is certain that there will be enough money in the checking account to pay the transaction until it is settled.

Of course, there are unusual circumstances in which an eCheck may bounce, but measures have been put in place to make sure they do not, which is a significant advantage over traditional check processing. 

Are eCheck Payments Secure?

Any online purchase raises security issues. On the subject of eCheck safety, people frequently turn to Google. It makes sense when you realize that, unlike credit cards, paper checks are a form of payment that hasn’t experienced any innovation in a while.

Surprisingly, in many instances, electronic payments are regarded as being more secure than a physical check because there is no physical document that may be intercepted.

Over the years, thieves have discovered ways to exploit paper checks for identity theft and fraudulent transactions. 

To evaluate it in more detail, here are a few reasons why you should have no reservations about accepting eChecks.

eChecks Payments Are Safer Than Paper Checks Payments

As stated earlier, criminals are more likely to intercept paper checks because they are physically and symbolically handled more often than eChecks. eChecks, however, send the data straight to the banking institution.

Furthermore, a paper check that is incomplete or contains inaccurate information, such as the date or the signatory, can still be processed and passed. However, if an eCheck has a problem, the transaction won’t start until the problem has been fixed. 

eCheck Payments Can Detect Potential Fraud

Through a check acceptance service, the payment gateway provider confirms the identity of the individual entering a client’s checking account details to ensure they are authorized to use the account. 

The acceptance service ensures that the requested customer data matches what the issuing bank has on record for the account by comparing it to the information it already possesses. The payment is turned down if it doesn’t. You won’t receive fake payment information thanks to the eCheck authentication process, which also makes sure that only authorized users are accessing the account. 

Furthermore, a transaction will be flagged if an account has a history of fraudulent activity after the check acceptance service has searched a database of customer and business bank records. 

Listed below are some electronic check security measures that guarantee the privacy of both your company’s and your customer’s information:

  • Multi-factor authentication
  • Transport Layer Security
  • Advanced Encryption Standard
  • Continuous security monitoring
  • Cloud infrastructure technologies

Benefits of eCheck Payments Processing

Both the business owner and the customer can benefit greatly from adopting eChecks. These benefits include: 

  • The cost is lower: An eCheck is far more cost-effective than a credit card transaction for sending or receiving substantial payments from clients, such as mortgages, monthly rent, or insurance premiums.
  • eCheck offers quicker delivery time: The speed at which the funds are delivered to your business bank account is another advantage of using eChecks. Oftentimes, the funds are available the following business day. 
  • Funds are deposited in the bank account: With eCheck, money is transferred straight to your company’s bank account and not to your merchant account. However, you can use the money from electronic checks right away because it is sent directly to your business bank account. Payments made with credit or debit cards are sent to your merchant account, where they are kept until settlement, at which point they are transferred to your company’s bank account. Since these funds aren’t immediately available, this may cause a disruption in your company’s cash flow.
  • eCheck circumvents the need for a merchant account: A merchant account is not required for eCheck processing. Businesses that are having trouble getting a merchant account may find this to be particularly interesting. High-risk businesses often submit applications for merchant accounts, but traditional banking institutions typically reject them to limit their risk exposure. Even though there are many factors to consider when determining a company’s risk level, companies listed on Mastercard’s MATCH list are virtually always regarded as high risk and may benefit from eCheck processing. 
  • There is no monetary value limit: The amount that can be paid with an eCheck is unlimited. While transaction and daily spending caps may apply to credit and debit cards, an eCheck is only constrained by the amount of money in your customer’s checking account. Offering an electronic check payment option might be particularly advantageous for companies that sell expensive products or services.

How to Send an Electronic Check

You may receive an invoice for the items or services you are paying for, depending on who you are interested in paying by electronic check. Add your financial details to this eCheck invoice. The data that is most frequently required is as follows: 

  • Your name or the name of your company
  • The bank account that will be used to withdraw money
  • the required route numbers
  • The issuing bank’s name

The eCheck is authorized once this information has been sent to the appropriate person. Verification, processing, and payment all follow at that point. 

Cost of eCheck Processing

If your eCheck payment processor levies a flat fee, it will normally be somewhere around 1%. You’ll typically pay between $0.25 and $1.50 per check if you’re levied a flat fee. Compared to many other payment options, eChecks are typically more affordable. Please be advised that prices are often higher for businesses with significant levels of risk. 

Focusing just on rates while ignoring other significant costs is a common trap that merchants fall into. Pay attention to any one of the following additional expenses:

  • Monthly fee
  • ACH return fee
  • Setup fee
  • Payment gateway fee
  • Chargeback fee
  • Monthly minimum fee
  • Expedited processing fee
  • Batch fee
  • Refundable deposit
  • Equipment fee
  • Check verification
  • High ticket surcharge
  • Check guarantee

The Estimated eCheck Processing Time

The length of time it takes for an eCheck to be processed varies depending on how many organizations are involved, including the payer’s bank, the payment processor, the ACH Network, and the payee’s bank. Before clearing, this transaction runs via a number of channels, and the time it takes to clear depends on those channels. Nevertheless, the following factors must be taken into account when determining the time required for the settlement of an eCheck:

  • The associated banking institutions
  • Your payment processor
  • The time the transaction was initiated
  • Weekends and/or banking holidays

Considering these factors, verification can take up to 48 hours, which means it could be another 3 to 5 working days before an eCheck can clear. 

Payments to Make with electronic checks

You can accept an eCheck for any products or services your firm sells if you have an operational eCheck payment processor. That is if your client decides to pay using an eCheck. This is because credit cards are currently the most widely utilized form of payment. Therefore, you can discover that the majority of your clients like to pay with a credit or debit card. 

It’s important to note that eCheck processing is regularly used by merchants when ticket sizes are significantly greater than usual. For instance, a wholesale supplier might pick eCheck as an alternative to a credit card if their credit card processor does not support a $30,000 transaction.

Allowing electronic checks may give your customers more options for paying you. And even if only a small percentage of your clients use eChecks as a form of payment, there will still be some transactions which you might profit from. 

Final Thoughts

Professionals must start accepting eChecks, given their noticeable surge in popularity. In addition to giving you more options for receiving payment, eCheck processing strongly suggests to your current and prospective customers that payments can be made more quickly and affordably.

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