What Are eChecks? Questions About eCheck Payment Processing Answered
The payments industry is undergoing a digital revolution—electronic payments are becoming the norm, and traditional payment methods are decreasing in use. Electronic checks (i.e., eChecks) are one of the increasingly popular digital payment methods.
An eCheck allows users to withdraw money from a checking account and deposit it digitally into another account, with no paper required. In 2003, the Check Clearing for the 21st Century Act (Check 21) established the regulations for eCheck payment processing. As a result, eChecks are a quick, secure and convenient digital payment method.
In this blog, we answer the most common questions about eChecks. Review our answers to learn more about electronic checks, their benefits for your business and how you can start accepting eChecks today.
1. What Is an eCheck?
An eCheck is a digital check that allows users to make an electronic payment from a checking account. Like a paper check, an eCheck requires the user to input basic personal information, but the information is collected electronically, and the transaction is processed entirely online.
The electronic check payment withdraws money from a payer’s checking account, transfers the funds via the automated clearing house (ACH) network and makes an eCheck deposit in the payee’s checking account using a payment processor.
People can use eChecks to pay companies for one-time or recurring bills. Businesses with an ACH merchant account can withdraw a customer’s payment directly from their bank account with the customer’s authorization.
eChecks are most beneficial to these types of businesses:
- Businesses accepting large payments: For high-value payments, eChecks help you save money. eCheck processing involves fewer parties than credit card payments and avoids interchange fees.
- Online companies: Since online businesses already operate digitally, they can collect payment details online for eCheck payments.
- Subscription-based businesses: Since eChecks are a type of recurring payment, customers can set up their account to send an eCheck on a repeating basis. Recurring eChecks are convenient for customers and businesses. Customers will always pay their bill, so the company will receive payment on time every period.
Other common names for eChecks include direct debit, online check and internet check.
2. How Does an eCheck Work?
An eCheck works like a paper check, except the information is transmitted electronically, making the process more efficient. eCheck payments require these steps:
- The customer starts a transaction: A customer authorizes an electronic money transfer by initiating an eCheck to a company for goods or services. Merchants must obtain permission from the customer through a contract, order form or similar method to withdraw money from their checking account.
- The merchant collects the payment details: Once the merchant has received customer authorization, they can collect the details needed for the eCheck, such as the customer’s bank account and routing numbers. Merchants can ask for this information via an online form, a paper form or over the phone. For recurring payments, the customer and merchant must decide on a payment schedule.
- The payment processor verifies the details: The merchant enters the customer’s details into the payment processing software. The merchant’s payment processor will validate the eCheck details to ensure the transaction is legitimate. Funds are verified 24 to 48 hours after the customer starts the transaction.
- The merchant’s account receives the payment: After verification, the ACH network will process the eCheck. The funds will move from the customer’s account to the merchant’s account within a few business days. Once paid, the customer will receive a receipt to confirm the eCheck has been deposited successfully.
3. What Payments Can Be Made With eChecks?
You can use an eCheck to make many types of payments. Rent, utility bills, business invoices and mortgage payments are all payable with eChecks. You’ll also see eChecks used for tuition payments, online purchases and nonprofit donations. Essentially, any transaction you can make with a paper check is payable with an eCheck. eChecks just make paying with checks more convenient since you can pay them from anywhere.
eChecks are common for several types of payments—especially those that are high-cost—such as:
- Mortgage payments
- Rent
- Car loan payments
- Utility bills
- Fitness memberships
- Legal retainer fees
- Subscription fees
Check with the institution or business you’re paying with a paper check to see if they’ll take an eCheck instead.
4. How Are eChecks Different from Other Electronic Payment Methods?
The payment industry uses several terms for money transfers, and each term means something different. Payment types that are similar to, but not the same as, eChecks include:
- EFT: An electronic funds transfer (EFT) is a general term for electronic payments, such as eChecks, wire transfers and direct deposits.
- Paper check: A paper check is a slip of paper where customers write out payment details. They give this paper to the merchant, and the merchant uses the paper check to withdraw funds from the customer’s account. An eCheck is essentially a digital form of a paper check.
- ACH: ACH and eChecks both transfer funds between bank accounts. eChecks use the ACH network to make transfers and manage funds between the payer and payee accounts.
- Credit card: eChecks and credit cards both process electronic payments, but in different ways. eChecks use the ACH network to transfer funds. Additionallly, they have low processing fees and no credit card interchange fees. Credit cards use their own payment infrastructure to process payments, resulting in higher fees.
- Wire transfer: A wire transfer manually moves funds from one bank account to another. Wire transfers are more costly since they’re manual. They’re also less secure since payments cannot be revoked.
To understand these differences, you could say eChecks are a type of EFT that acts like a digital version of a paper check, using the ACH network to process payments quicker and cheaper than credit cards or wire transfers.
5. Are eChecks Secure?
eChecks are generally a safe form of payment. Working with a trusted platform provides security support through encryption and authentication processes. The ACH is also a highly regulated and secure network, further protecting personal and proprietary information. Banks and payment processors use fraud detection and tokenization to decrease risk levels; however, any financial transaction carries a potential fraud risk. That’s why merchants and customers should only work with reputable businesses on secure networks. Remember to keep an eye on your account activity and report unusual activity immediately to catch security risks early.
Security is the primary advantage of eChecks over traditional payment methods because they are subject to consumer protections codified in Regulation E, federal law that protects consumers against fraudulent and incorrect EFTs. The security components of electronic check payments include:
- Authentication: Authentication verifies the identity of the individual who’s submitting account information. This process ensures that the merchant gets legitimate payment information and the customer consents to have funds taken from their account.
- Digital signature: A digital signature is an encryption technique that uses timestamps to ensure eChecks cannot be duplicated.
- Duplicate detection: Duplicate detection monitors eCheck transactions for suspicious activity. This strategy can detect fraud, such as duplicated checks.
- Encryption: Encryption masks payment data to make it nonsensitive. Encrypted data is useless if stolen because the hacker must have the encryption key to decrypt the information. All ACH transactions, including eChecks, must be encrypted if they occur over unsecured electronic networks.
- Public key cryptography: This step is part of the encryption process. The key has the information needed to encrypt data during the transfer and cipher it at the receiving bank.
- Certificate authorities: The certificate authorities store, sign and issue a digital certificate to encrypt transactions, secure communication and protect information. They can certify the ownership of a public key. A Secure Sockets Layer (SSL) certificate is an example.
6. What Are the Benefits of eChecks?
eChecks offer several benefits for businesses and customers. Besides being a secure payment method, companies should take advantage of eChecks because they:
- Process faster than checks: eChecks take only three to five business days to finalize since the transaction is completed online. This timeline is much faster than paper checks, which can take more than a week to finalize while the payment details are verified. With eChecks, you’ll get paid right away instead of waiting for your money.
- Increase revenue: Accepting eCheck payments can help your business make more money. Checking account numbers stay the same, whereas credit card numbers often change, so your payments will go through more often, with fewer chargebacks. eChecks can also be set up as recurring payments, ensuring you get paid on time and eliminating the need to track down paper checks.
- Save money: eChecks have lower processing fees than credit cards. By accepting eChecks, your company can pay less in fees and get more money for your operations.
- Are easier to track: Hard copies of payment confirmations take up physical room in your office. With an eCheck, you and your customers will receive an email confirmation of payment, which you can store digitally.
- Cannot be lost or misplaced: An eCheck is a digital record, so it’s virtually impossible to lose. The banks and ACH network will keep track of the payment until it’s processed. Paper checks can be lost, requiring the payer to issue another check and stop the original check to prevent someone else from cashing it.
- Reduce waste: Since eChecks exist digitally, no paper is required. Your business can use less paper and reduce waste.
7. How Long Do eChecks Take to Process or Clear?
eChecks will usually take two to five business days to clear. The exact timing depends on how the bank and ACH network handle the transaction. This process takes several days while the eCheck is verified and cleared, delaying the fund transfer. Using credit or debit payments is instant; eChecks take more time, but are still faster than physical checks.
8. Do eChecks Process on Weekends?
eChecks will not process on weekends. eChecks rely on the ACH network to complete the transaction. The ACH network follows the traditional workweek, meaning you’ll need to work within a Monday-to-Friday schedule. Any eChecks initiated on Fridays or during the weekend will wait for processing until the following Monday. Keep this in mind when planning your time-sensitive payments—try to get your eChecks in early to avoid weekend delays.
9. How Much Does It Cost to Process an eCheck?
eCheck processing costs will vary based on the institution. The exact fee will usually be a small percentage of the transaction total. Additionally, there might be a monthly fee attached to your account. Some banks and payment processors charge additional monthly fees to cover costs. However, you might see a smaller processing cost for larger orders. Despite their processing costs, it’s often cheaper to use eChecks than credit cards, which usually carry higher processing fees.
10. How Do I Send an eCheck Payment?
To send an eCheck, you’ll most often use an online form to input your bank routing number and account number. Once you have entered the correct information, you can initiate your eCheck payment through your bank or payment platform. You’ll type in the essential transaction details and send your eCheck off to process. Once the processing period is over, the funds will be transferred from your account.
11. What if an eCheck Bounces?
If your eCheck bounced or is returned, it means there weren’t enough funds in the account. If you’re dealing with this issue, you must contact the sender to get the amount paid correctly. If you’re the sender, make sure your account has enough funds to cover the check. If it does not, add the funds you need and try to resend the check. If you have enough funds in the account, there could be a problem with the recipient’s information. Double check everything and contact your bank for assistance.
If you’re the eCheck recipient, you’ll need to invoice the sender again or ask for a different payment method. Some banks and processors may charge a fee for bounced eChecks, so check your account for additional charges.
12. How to Cancel an eCheck
Canceling an eCheck is straightforward if the check hasn’t cleared. If you need a check canceled, contact your bank or payment processor as soon as possible. Try to reach out within the same day to prevent the check from clearing. If the eCheck still needs to clear, the bank can usually stop it from being processed. However, once the process starts, check cancellation is probably impossible. You’d need to contact the recipient and request the funds be returned. Always check the information on your eChecks for accuracy before sending them.
13. Can Customers Submit Chargebacks on eChecks?
Yes, customers can submit chargebacks on eChecks. The process is different from credit card chargebacks. With eChecks, you’ll see chargebacks due to insufficient funds, processing errors or unauthorized transactions. Customers have to contact their bank to start the chargeback. Once they do, they can reverse the transaction. However, customers need to file their disputes within a set time frame—otherwise, the chargeback will not go through.
14. How Can I Get an eCheck Merchant Account for My Business?
Getting an eCheck merchant account starts with contacting your payment processor for ACH services. You’ll need to give them your business information—like tax identification, transaction details and financial statements. If you’re approved for an eCheck merchant account, you can start accepting eChecks from senders. If you’re denied, you’ll need to work with the payment processor to find out what you need to do to get approved.
15. What Are Some Common eCheck Challenges?
While eChecks are a convenient payment format, they can come with some challenges. You should be aware of these potential problems before using eChecks:
- Processing delays: Processing time is one of the main eCheck challenges. Waiting several days for a check to clear can affect your access to funds. While credit and debit transactions happen instantly, you’ll need to wait for eCheck processing to finish. These delays might affect your cash flow, disrupting your business.
- Fraud risks: eChecks are fairly secure; however, there fraud risks are always present. Compromised bank account details can lead to unauthorized transactions, for example. Banks have protections in place, but becoming a victim of fraud can be stressful and time-consuming, and recovery can be arduous and complicated. Always ensure you’re using a secure payment platform to protect your sensitive information.
- Bounced or returned echecks: eChecks can bounce just like paper checks. If the sender lacks the funds, checks will not go through. Failed transactions mean delays and potential fees for the sender and recipient. Businesses dealing with bounced checks will have to follow up with the customer to get the problem fixed, which will delay the transaction even more.
- Limited support: While eChecks are convenient, not all businesses accept them as payment. If you want to offer eChecks, you’ll need to find a provider that supports ACH transactions. Getting eChecks set up could involve additional costs.
- Customer adoption: Some customers might avoid adopting eChecks over information concerns. Not everyone wants to share their bank information online. This concern can limit the adoption of eChecks for customers, especially if many of your customers prefer credit cards. Educate your customers about eChecks to encourage them to adopt the new payment method.
CSG Forte Can Help You Accept eChecks
Your company needs a payment processor to accept eChecks from your customers. CSG Forte can help you start processing eChecks on our trusted payments platform. Our software solutions allow merchants like you to accept eChecks, ACH payments, credit cards and debit cards. Reach out to us today and see how we can simplify your payments processing!
