What is an eCheck and How Does an eCheck Payment Work?
When dealing with clients, accepting eCheck payments or electronic checks is an excellent way for business owners to make financial transactions more convenient. In the world of electronic payments, eChecks are a relatively new and increasingly popular payment option for both consumers and businesses. Today, millions of people in the U.S. prefer paying for goods and services with electronic checks over other modes of payment, including credit cards. As such, adding an eCheck payment option to your website’s checkout page helps increase sales.
But what exactly are electronic checks and how do eChecks work? In this article, we’ll take a closer look at these online payments, assess their benefits, and determine what your business needs to accept electronic checks as one of its payment methods.
TL;DR
- eChecks are processed through the ACH network and are one of many types of payments falling under the electronic funds transfer (EFT) umbrella.
- eCheck payments work in the same way as an ACH transfer, using the routing number and account number to transfer funds between accounts.
- Using eChecks to accept payments can save businesses on payment processing costs as they are usually less expensive than a debit or credit card transaction.
What is an eCheck?
eCheck payments, or electronic checks, are a digital version of traditional paper checks, and they are rapidly gaining traction in the modern economy due to their convenience, security, and cost-effectiveness. eChecks are a secure payment method that transfers funds from a customer’s checking account into a merchant’s bank account using a payment processor, but instead of writing the check out manually and sending it through the mail, you enter the details into a secure online form. This is considered a type of electronic funds transfer (EFT) where money is transferred from one financial institution’s account to another account electronically without the direct intervention of the bank’s staff. Electronic funds transfer methods are generally considered more secure than paper checks.
In the United States, eChecks are processed by the Automated Clearing House (ACH) merchant network, an electronic network that processes financial transactions between participating financial institutions like banks. Customers authorize ACH network transactions by signing a contract or using a website, allowing money to be transferred between bank accounts.
How Does eCheck Payment Processing Work?
eCheck Processing is very efficient and consists of three steps:
- Customer authorization: In addition to signing a paper contract or using an online form, customers can authorize electronic check processing transactions over the phone.
- Payment set-up: Businesses set up both one-time payments and recurring payments through a payment processing system.
- Confirming payment: After receiving all payment information, a business submits details through the Automated Clearing House ACH network system to withdraw funds from the client’s account and deposit them into the business’ account. The entire eCheck payment processing procedure usually takes three to five business days.
From the consumer’s perspective, eChecks work similarly to a traditional paper check. They are able to authorize a payment by providing the necessary bank account information, and the payment is initiated and processed by the banks involved. However, unlike a paper check, eChecks are entirely digital and require no physical handling or mailing of documents. This means that eCheck processing can be done much faster than a paper check, with the payment typically clearing within one to two business days.
How Long Does an eCheck Take to Process?
eCheck transactions are a type of ACH payment and transfer funds between bank accounts using the Automated Clearing House network. Using this form of digital payment the customer enters their bank routing number and account number for a direct debit payment to the receiving bank. This may sound an awful lot like an ACH transaction, and it is—but with a couple of differentiating details, including the processing time.
The main difference between eCheck transactions and the ACH transfer form of payment is that an eCheck is a one-time transaction, whereas ACH payment can be set up for recurring transactions, such as automatic bill pay or direct deposit. If processed as a one-time transaction, eCheck payments may not have the customer’s bank account information saved, resulting in an additional 1-2 business day processing time on top of the standard 1-3 days for standard ACH transactions.
How Long Does it Take for eChecks to Clear?
Because eChecks are reliant on the financial institutions for payment processing, they are limited to business days. That said, an eCheck will typically process or “clear” in five business days at the most, often sooner.
What Type of Business Transactions Use eChecks?
Given the versatility of eChecks, many businesses and clients pay for products and services using electronic checks. These include both small businesses and big companies like PayPal that enable payees to purchase items with eChecks when the buyer doesn’t have a credit card or alternate source of funding attached to their PayPal account. This makes payment more convenient and encourages customers to use PayPal as their online payment method.
Electronic check processing allows a customer’s payment schedule to be simplified and streamlined via predetermined payment authorization with the payer’s bank account, which in turn leads to more overall bill payments than traditional one-off payments.
What are the Benefits of Accepting eChecks?
Because they are transmitted electronically, eCheck financial transactions are quicker, safer, and simpler than many other modes of payment. This results in several benefits for both businesses and their clients.
More convenient
Unlike traditional paper checks, a digital eCheck does not need to be deposited at a physical bank and processes nearly twice as fast as a paper check. In 2018, the National Automated Clearinghouse Association (NACHA) updated its guidelines to allow processors to offer same-day funding for customers.
One of the primary benefits of eChecks is their convenience. Because they are entirely digital, eChecks can be initiated and processed from anywhere with an internet connection. This means that consumers can make payments without having to physically visit a bank or mail a check, and merchants can receive payments without having to handle physical checks or wait for them to clear. This convenience can save time and reduce the administrative burden for both consumers and businesses. This is a big advantage for clients who need to make fast transactions.
Cost-effective
Processing fees for eChecks tend to be lower than credit card transactions. Because eChecks require no physical handling or mailing, they can be processed at a lower cost than paper checks. These cost savings can be passed on to consumers and businesses, resulting in lower transaction fees and processing costs. Instead of credit card networks, electronic check payments uses the Automated Clearing House (ACH) for processing transactions between participating financial institutions like banks. This eliminates the need for credit card interchange fees, resulting in huge savings for subscription-based businesses that accept recurring payments as well as businesses that accept large payments.
Transfers made by the ACH network also save money since they take place in batches, making them cheaper to process than wire transfers that move money from one bank account to another one transaction at a time.
Sustainable
Switching from paper checks to eCheck payments reduces the 3.6 million tons of greenhouse gas emissions and 67.4 million gallons of fuel expended in transporting paper checks. Not only does this result in additional savings, it also provides a way to show the public that your business cares about reducing its impact on the environment.
Businesses appreciate receiving eCheck payments because checking account numbers and financial institutions don’t change as often as credit card numbers. As a result, clients don’t need to update their financial payment information as often and cash flows in more regularly to the payee’s bank account.
Reversible
ACH transactions can also be reversed after being initiated, unlike wire transfers, making eCheck transfers more secure for clients. Coupled with the encryption and tokenization that eChecks use to prevent fraud and data theft, eChecks reduce the chance of a business getting a bad payment while securing client payment information.
Given all of these benefits, it’s no wonder that ACH use has been steadily rising. According to NACHA, 30 billion payments totaling nearly $77 trillion were processed in 2022 using the ACH network.
Security
Another benefit of eChecks is their security. eChecks are processed through the Automated Clearing House ACH network, which is regulated by the Federal Reserve and subject to strict security standards. This means eChecks are generally considered to be safer than traditional paper checks, which can be lost, stolen, or altered in transit. eChecks also provide a clear digital record of the payment, which can be helpful for tracking and reconciliation purposes.
What are the drawbacks of eChecks?
While eChecks offer many benefits, there are also some potential drawbacks to consider. One of the biggest drawbacks of an eCheck payment is that they can be subject to processing delays and errors. Because eChecks are processed through the ACH network, they must follow strict processing timelines and procedures. If there is any missing or incorrect information, the payment can be delayed or rejected, which can be frustrating for both consumers and businesses.
Another potential drawback of an eCheck payment is that they may not be available as a payment option for all merchant services providers. While many payment processors now accept eChecks, some may only accept credit or debit card payments.
Finally, an eCheck payment may be subject to fraud or unauthorized transactions, just like any other form of electronic payment. Consumers should take care to ensure that they are only providing their bank account information to trusted merchants, and should monitor their accounts closely for any unauthorized transactions.
Overall, the benefits of electronic checks far outweigh the cons. If your business takes large credit card payments regularly and you are looking to reduce your merchant fees and increase your recurring payments, you may want to begin to collect eCheck payments.
What Do Businesses Need to Accept eChecks?
In order for your business to accept eCheck payments from a customer, you must first collect the client’s financial information, including bank account routing number and payer’s checking account numbers. This can easily be done by providing a secure form web page on your website for clients to enter their information. Other businesses obtain this payment information over the phone or in person with a paper form.
Your business will also need to sign up for an ACH merchant account to withdraw customer funds online via an ACH payment. When setting up this account, a business must provide:
- Its Federal Tax ID Number
- The name and address of the business
- The number of years the business has been in operation
- Transaction processing volumes
- Bank account number information
What is an eCheck on PayPal?
For those using the payment solution PayPal, you may already be familiar with eChecks, even if you didn’t know it. With PayPal, users can add both credit and debit cards as well as linking their bank account to the platform. When using your bank account directly to receive funds or to send payment for goods or services via PayPal, you’re using an eCheck.
Because PayPal is a third-party payment processor and conducts their own security screening, processing time for eChecks is extended and can be as much as 5-7 days when using this service. In some cases, such as insufficient funds in the debit bank account, the funds transfer can take additional time because PayPal will try to debit the account again after three days. Additionally, new users and businesses on PayPal may be subject to further security screenings and authentication, which could further delay payment processing.
Increasing Your Payment Options with eCheck Payment
Adding eChecks as a payment option for your business services offers a safe and convenient way for clients to make financial transactions. Advertising electronic check options on your website helps attract customers and shows your company employs business practices that reduce waste and make payment easier.
In order to make this service as smooth as possible, make sure to choose a payment processor that supports the most popular payment methods in use today.
Stax is a highly-ranked payments platform designed to simplify your payments through subscription-style merchant services.
FAQs about an eCheck
Q: What is an eCheck?
An eCheck, or electronic check, is the digital equivalent of a traditional paper check. They are processed through the Automated Clearing House (ACH) network and used to transfer funds from a customer’s bank account into a merchant’s bank account using an online payment processor. Customers input their check details into a secure online form rather than writing them out and sending them manually.
Q: How does an eCheck payment work?
An eCheck payment process typically involves three steps. First, the customer authorizes the transaction, which could be done through a paper contract, online form, or even over the phone. Second, businesses set up the payment, which could be a one-time payment or recurring payment scheduled through a payment processing system. Finally, after receiving all payment information, the business submits these details via the ACH network to withdraw funds from the customer’s account and deposit them into the business’s account.
Q: How long does it take for an eCheck to process?
An eCheck typically takes three to five business days to process. This is because eCheck transactions use the Automated Clearing House network to transfer funds between bank accounts and such transfers take place in batches, which can add to the processing time.
Q: Can businesses accept eCheck payments?
Yes, businesses can accept eCheck payments as one of their payment methods. To do so, they need to collect the client’s financial information, like bank account routing and checking account numbers, and register for an ACH merchant account for online fund withdrawal as an ACH payment.
Q: What are the benefits of using eChecks?
eChecks offer numerous benefits. They are quick, safe, and relatively easy to use. Unlike paper checks, eChecks are processed faster and do not require physical submission to the bank. Fee structures for eChecks are also typically lower than those for debit or credit card transactions, making them a cost-effective payment method. Besides, eChecks are also eco-friendly since they reduce the use of physical checks and consequently minimize waste.
Q: Are eCheck payments safe?
eChecks are generally considered safe. They are processed through the Automated Clearing House (ACH) network, which is regulated by the Federal Reserve and must adhere to strict security standards. These checks also provide a clear digital record for tracking and reconciliation, which offers an added level of security.
Q: What are the drawbacks of using eChecks?
While eChecks offer significant benefits, there are some potential drawbacks. For instance, eCheck payments can be subject to processing delays and errors because they must comply with strict procedures of the ACH network. If there’s any missing or incorrect information, payments can be delayed or rejected. Another potential issue is that eChecks may not be available as a payment option for all merchant services providers. Finally, they are also susceptible to fraud or unauthorized transactions, just like any other electronic payment.
Q: What is an eCheck on PayPal?
An eCheck on PayPal is simply a payment made using your linked bank account. When you receive or send payment for services or goods via PayPal using your bank account directly, you are using an eCheck. However, keep in mind that processing times for eChecks on PayPal can be longer than usual and may take anywhere from 5-7 days.
Q: Can businesses benefit from accepting eCheck payments?
Yes, businesses can significantly benefit from accepting eChecks. Because of their digital nature, eChecks offer faster processing times and lower transaction fees compared to traditional paper checks. They also allow for more efficient record-keeping and can be accepted from anywhere with an internet connection. Finally, with eCheck payments, businesses often encounter fewer issues with expired or reissued credit cards, which improves cash flow reliability.
Q: Are there any sustainability benefits for businesses using eChecks?
Yes, switching from paper checks to eChecks can significantly enhance a business’s sustainability credentials. This migration reduces the greenhouse gas emissions and fuel used for transporting paper checks, showing public commitment to environmental sustainability.
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