What Are eChecks, How They Work and How to Use Them

An eCheck is a payment method that allows small businesses to take payments directly from their customers. Learn how it works and how to use it here.

An eCheck or electronic check is just one of several types of payment methods you should consider offering at your business. Remember that providing convenient payment methods that your customers want will improve the customer journey and help you get paid faster.

But before you can start accepting them, you need to understand what an eCheck is.

What is an eCheck?

As the name implies, eChecks are essentially electronic checks. You can think of this as an alternative to paper checks at the most basic level.

Since an eCheck is just an electronic variation of a paper check, it contains all the same information as a traditional check, including the bank account number, the routing number, a (digital) signature, the date, and the quantity. This check is sent from your checking account to another bank account, and using this payment method involves setting up your bank account to facilitate electronic check processing.

The most significant difference between a traditional paper check and an eCheck is that, with the latter, the entire process is managed digitally. It’s also important to note that an eCheck is not the same as a paper check processed through a check-scanning app.

Are eChecks different from ACH?

ACH transfers and eChecks are often used interchangeably, although there are some slight differences. An eCheck payment uses the Automated Clearing House (ACH) network. This network is also used to make an ACH payment. While both are very similar, eChecks are a newer technology that handles payment information slightly differently.

You may be interested to know that all eChecks are processed via the ACH network. ACH payments, however, are not always eChecks. This is important to know because your fees will depend on the type of transaction.

Keep in mind that the ACH network uses batch processing, processing multiple transactions simultaneously. By contrast, wire transfers (which we’ll talk about shortly) are processed one by one. You can also reverse ACH transactions if done early enough.

Benefits and Advantages of eChecks

Choosing to accept eChecks comes with a long list of benefits.

1. Immediate Fund Information

As mentioned, you will instantly know that the customer has enough funds in their account. This contrasts with traditional checks. It also gives peace of mind to business owners, as they know that the payment will go through.

2. Security

You don’t have to worry about online fraud, as eChecks are incredibly secure. Extra security comes from the encryption and tokenization that eCheck payment processors use. The lack of physical documentation also protects your customers’ banking information during eCheck transactions.

3. Can Be Reversed

Another reason that eChecks are considered secure is that they can be reversed. This is not the case with wire transfers. The fact that you can reverse this type of electronic payment helps prevent fraud.

4. Cost-Efficient

The processing fees for electronic checks are less than those for credit cards. For example, a $10,000 eCheck could cost you around $300 if it were a credit card payment, but it may only cost you a few dollars as an eCheck. That’s why many merchants that do big-ticket items prefer bank transfers, as they’ll end up saving more in the long run.

5. Few to No Transaction Limits

Compared to some other payment methods, eChecks are less likely to limit the transaction size. This lets you offer more payment options across all purchase sizes.

6. Can Be Used for Recurring Bills

eChecks also offer a great alternative to credit cards for recurring payment. This comes from the fact that they rely on bank account information, such as the checking account number, which does not change as often as credit card numbers. As such, it’s less likely that you’ll have to contact the payer about inaccurate information. That, in turn, improves your cash flow.

How do eChecks work?

There are two main ways that you can process eChecks. Sometimes, you will process them in person. In this scenario, a customer may write out a check at your store, and you will scan it to convert it to an eCheck.

You can also accept eChecks online. In this case, your customer simply enters all of the relevant banking information in your secure portal.

As mentioned, the process uses the ACH network. The customer’s bank account and purchase amount go through the network. This then triggers a withdrawal from the customer’s account and a deposit into yours.

Because the process is automatic, you can instantly confirm that they have enough funds. This dramatically reduces the risk of a bounced check, which is a concern with paper checks.

If you want to get into more detail about how you process eChecks, it involves the following:

1. Authorization

First, you request authorization from the customer. This includes entering the eCheck information into the system. You then submit the information.

2. Verification

This step is also called authentication. During this stage, the payment provider verifies all of the information provided. This prevents fraudulent information from being sent to the merchant.

3. Encryption

Encryption is a crucial part of payment processing as it ensures the security of the transaction. This step involves masking all sensitive data. Some ACH transactions occur on unsecured electronic networks, which is why this step is essential.

4. Transmission

Once the information in the ACH transaction or eCheck is verified and encrypted, it is transmitted, officially making the request for the funds to be transferred.

5. Processing

The funds are automatically withdrawn.

6. Clearing and Settlement

The funds are deposited into your account within several business days.

eChecks vs. Paper Checks vs. EFT and Wire Transfers

We’ve touched on a handful of ways that eChecks are different from other payment methods. But before you follow through with switching to eChecks, make sure you understand how they compare. This will help you decide which situations to accept which payment methods in.

Paper Checks

Paper checks have a few more security concerns. For example, the fact that a physical paper has customers’ banking information can increase the risk of theft. You also have a greater chance of forged traditional checks.

You can’t confirm that a paper check will not bounce as the recipient. However, eChecks automatically confirm there are enough funds before finalizing.

Using eChecks is more environmentally friendly, as it doesn’t use paper. Customers also appreciate that they don’t have to spend money on checkbooks.

Encouraging customers to use an electronic check instead of traditional checks also saves you time, especially in administrative work, as you don’t have to worry about lost or misplaced checks.

For example, you don’t have to complete as many steps, especially in the case of payments for home services that customers submit after. In the case of paper checks, they’d have to mail them in, and you would have to open the envelope and do additional tasks. By contrast, they can send the eCheck payments entirely remotely without any paper and minimal manual tasks on your end.

EFT and Wire Transfers

EFT is an abbreviation for Electronic Funds Transfer. EFT is a broad category that includes nearly any type of electronic financial payment. It can consist of ACH payments, wire transfers, direct deposits, direct debit, and eCheck payments.

Like eChecks, wire transfers directly send funds from one bank account to another. This would mean they send funds from your customer’s checking account to your business bank account.

However, wire transfers cannot be canceled while an electronic check can.

Wire transfers are also designed for one-time payments. This means they cannot be used for recurring bills like subscriptions or memberships. By contrast, you can use eChecks for either one-time or recurring payments.

Credit Cards

eChecks directly debit the funds from a customer’s bank account, just like would be the case with a debit card or paper check. By contrast, credit cards are technically loans the issuer makes to cardholders. The cardholder will then pay the credit card issuer later on, so they do not need to have the funds in their account.

Credit card payments tend to have higher processing fees than eChecks. The exact cost, and the extent of the difference, will depend on your payment processor.

The way that each of these payments is processed is different as well. Credit cards rely on the credit card network, while eChecks use the ACH network. This is why there is such a difference in processing fees.

Payment Solutions for Growing, Modern Businesses

Simply put, letting your customers use eChecks to pay will reduce your processing fees. It will also be more secure and give your customers yet another way to pay. This should increase their satisfaction and make it easier to get paid on time. It is also easy to accept eCheck payments, and you can use them for online payments or in-person transactions.

In addition to eCheck payment processing, Podium makes it easy to accept payment from customers, letting you boost growth. You can accept credit cards and other payment methods with card readers or even via text. Get paid faster and save time with Podium Payments.

FAQs

1. Do ACH and EFT fall under electronic check processing?

Yes, both an EFT and an ACH are a type of electronic check processing. They both use a digital payment gateway.

2. How to cash an eCheck?

You can typically cash an electronic check just like a paper check. For example, you can typically use a mobile banking app to deposit it or deposit it via your bank’s ATM. If you’ve printed the eCheck, you can also usually cash it with the teller at your bank.

3. How much does it cost to process an eCheck?

The cost of processing eCheck payments will depend on your payment processor and merchant account. On average, each transaction will cost about $0.30 to $1.50 to process. Your payment structure may be a set monthly fee or a fee per transaction.

4. What if an eCheck bounces?

The same thing happens if an eCheck bounces, as would happen if a traditional check bounces. The person who received the eCheck does not receive the funds from it. They may have to pay a fee, and the person who issued the eCheck is likely to have to pay a fee.

5. How long does it take for an eCheck to clear the bank?

It varies, but most eChecks will take three and five business days to clear the bank. The processing time is a few days because the funds have to go through the ACH network.

6. Can I use eChecks for recurring payments?

Yes, you can use eChecks for recurring payments. This makes it an excellent option to offer for companies with memberships or subscriptions.

7. How can I cancel an eCheck?

You can only cancel an eCheck if you are the one receiving it. You will have to go into your payment system and cancel it there. The exact steps will depend on your system.

Keep in mind that if the payment from the eCheck has already cleared, you can’t cancel it. In this case, you would have to refund it instead.

8. Is electronic check safe?

Yes! Electronic checks are considered safer than traditional checks. Part of this comes from the fact that the information goes directly between financial institutions. On top of that, information can’t be accidentally left off of an eCheck like it could on a paper check.

9. How do I pay with an eCheck?

The payee starts the process of letting you pay with an eCheck. They send you a payment form asking for your checking account number as well as your routing number. You enter those and confirm the payment amount via this digital payment form.

10. How do you send an eCheck to someone?

The easiest way to send an eCheck is if a store sends you an online form. But you can also sign up for an eCheck service that sends your eChecks as an ACH transaction. This will be a straightforward process, and then you just choose how much to send and enter the recipient’s information.