In late 2021, digital payments have become the norm—and it’s easy to see why. Electronic forms of payment such as cards, ACH payments, and electronic checks (eChecks) come with many benefits.
eChecks, for instance, preserve the customer’s confidence in and familiarity with paper checks while adding speed and convenience.
And for businesses—especially service-based companies who need to manage their customers’ registration and payments online—accepting eChecks can be more efficient, expedient, and cost-effective.
Read on for a guide to using eChecks in your business, including what they are and how they work, how their security stacks up to other forms of payment, and the benefits of using eChecks.
Then, we’ll show you how to add eChecks to the forms of payment you accept in your own sales.
Jump to section:
What Are eChecks?
How Do eChecks work?
How Secure Are eCheck Payments?
What Can eCheck Payments Be Used For?
What Are the Business Benefits of Using eChecks?
What Do You Need to Start Accepting eChecks?
An eCheck is a digital—not to mention a much easier and faster—version of a traditional paper check. eChecks work through the automated clearing house (ACH) network, and they are also referred to as:
- Electronic checks
- Direct debits
- Internet checks
- Online checks
Customers who pay by eCheck provide their authorization for funds to be released from their accounts. Then, businesses use a payment processor to withdraw electronic payments in exchange for goods or services.
Traditional paper checks can take a great deal of time and effort on all sides. The customer must fill out the check, sign it, and deliver it to the vendor either in-person or via mail.
Then, the vendor must physically take the check to their bank for deposit. Finally, the check goes through the standard deposit process at the bank, which can take several days to clear.
eChecks help cut through the majority of that inconvenience and wait time. And even better, eChecks avoid a great deal of the risk of loss or theft paper checks carry.
As John Lehman writes for CPACharge:
“Paper checks pass through more hands than eChecks (literally and figuratively), which creates more opportunities for fraud and/or interception by criminals. But with eChecks, the information is transmitted directly to the financial institution.”
Clearly, eChecks are not just a more convenient solution for you and your customers, but a safer one, too.
Much like paper checks, eChecks notify the payor’s bank to send funds to the payee’s bank. But because everything happens digitally, the process is much faster and more convenient for all parties involved.
First, the customer authorizes payment.
The easiest way to accept payment authorization from customers is by a payment form built into your website, such as the ones available through Regpack.
These forms are as easy to complete as a standard credit card payment form, which is an added convenience for customers.
Other ways to authorize an eCheck payment include filling out a physical form or giving authorization over the phone. Whatever method the merchant uses, they’ll need to get the following information about the customer:
- Full name
- Bank routing number
- Bank account number
- Amount to be withdrawn
And the customer must give their consent for the payment, either by written or digital signature or by authorizing the payment over a recorded phone call.
Next, the merchant (also known as the “originator”) enters the information into the payment processing system and sets up either a recurring or a one-time payment.
The transaction is initiated through the ACH system and looks like this:
- The originator’s bank—known as the Originating Depository Financial Institution (ODFI)—sends the payment request to the ACH operator
- The ACH operator receives payment requests in batches, sorts them, and sends each to the appropriate bank
- The customer’s bank—known as the Receiving Depository Financial Institution (RDFI)—receives the request from the ACH operator. After verifying that the funds are available in the customer’s account, the bank debits that account and credits the merchant’s bank account.
The processing time for an eCheck transaction used to be 3-5 business day.
But thanks to new capabilities introduced by the National Automated Clearinghouse Association (Nacha), which oversees the ACH network, same-day transactions are now possible in some circumstances.
Of course, since the ACH network relies on financial institutions, eCheck processing can only be done during business days.
eCheck Processing Cost
The cost to accept eChecks depends on the eCheck merchant account provider, but they are almost always the cheaper option compared to accepting credit cards.
The cost for accepting eChecks is much more akin to the cost of accepting ACH payments. Credit card processing fees can be up to 3.5% of the transaction, while the average rate to process an eCheck is between $0.10 and $1.50.
The processing cost for eChecks is an especially useful benefit for businesses that accept larger payments; a $12,000 check might cost a dollar or two to deposit, while credit card processing fees for the same amount could run you over $400.
While rates can vary based on the transaction account you use, it’s safe to say that eChecks are less expensive than credit card processing.
What’s the Difference Between eCheck, ACH, and EFT Payments?
In the financial world, there are many ways to send money digitally—and it’s easy to get them confused. It doesn’t help that some, like eCheck and ACH, use the same system and look almost exactly alike.
EFT, or Electronic Funds Transfer, is a catch-all term for money transfers done electronically. This category includes:
- Wire transfers
- ACH payments
- Phone payments
- Card transactions
- ATM transactions
- Direct deposits
ACH payments are transactions that use the Automated Clearing House network in the United States to process. These types of payments include eChecks—and therefore, the two terms are often used interchangeably.
The best way to differentiate EFT, ACH, and eChecks is to remember that eChecks are a type of EFT that is processed via the ACH network.
Because they don’t involve slips of paper that can be lost, damaged, or stolen easily, eChecks are much more secure than paper checks.
Likewise, cards can be stolen or their numbers copied for later use—while eChecks come with quite a few more layers of security.
It is extremely difficult to commit eCheck fraud thanks to the encryption, digital signatures, and authentication processes put in place by the Federal Reserve Board’s Regulation E.
eChecks must be authenticated by the merchant account provider before the transaction takes place.
And all ACH transactions are required to be encrypted—meaning all sensitive data is masked and therefore protected in case the information is hacked during the digital transfer.
Also, certificate authorities (CAs) issue digital certificates to protect eChecks’ data, encrypt the transactions, and enable secure communication. As Casey Crane, crime analysis and IT security expert, explains:
“How do you know you’re connected to [a] real website? That’s a certificate authority’s job—they verify websites/organizations so that you know who you’re communicating with online. (This way, you don’t accidentally send your credit card number to a hacker in Timbuktu.)”
Electronic checks also use digital signatures with timestamps to prevent duplication for the purposes of check fraud. And any suspicious activity is monitored by a fraud detection strategy called duplicate detection.
Because they offer a level of security paper checks and cards can’t match, eCheck payments are among the most secure forms of payment a consumer can make.
As you might imagine, eChecks can be used for anything their paper counterparts can—and more. Because they’re more secure and, often, more convenient than paying via paper check, eChecks are a great choice for businesses of all kinds.
Perhaps the most popular use for electronic checks is for recurring, high-cost payments such as rent or mortgage installments, car loan payments, gym memberships, and legal fees.
But given the low processing cost compared to credit card payments, eChecks would be a good fit for even low-cost recurring payments of any kind.
Any payment that customers typically make by submitting a paper check would benefit from the switch to an eCheck.
And since electronic checks are more secure than other forms of electronic payment, they can be a great alternative to credit and debit cards as well.
Giving your customers the choice to add their banking information in place of credit card information enables a recurring payment that is no less convenient for them, but much more secure.
We’ve already covered a few of the upsides to accepting and using eChecks, including their convenience and added security compared to other forms of payment. Let’s look at a few more reasons to use eChecks.
Speed and Ease of Use
Electronic checks are processed much faster than paper checks since you don’t need to factor in the time it takes to deliver the check from the consumer to the merchant—and then the additional time it takes the merchant to bring the check physically to the bank.
And eChecks don’t have to go through the additional hold time that paper checks do.
As part of the transaction process, the receiving bank (the RDFI) confirms that the account has sufficient funds to make the payment. So there’s less need for a long holding period that would be required with a paper check deposit.
Not only do electronic checks reduce the environmental impact of using traditional paper checks, but they also contribute to a better and more accurate “paper trail” than actual paper does.
Each time an electronic check is processed, both the merchant and the customer receive a payment confirmation notice. Usually, these appear in an email or a PDF file that each party can easily save to their records. No more manually balancing a checkbook!
As previously noted, eCheck processing fees are generally lower than the fees required to process credit cards. They’re also much more affordable than wire transfers, which can average $25 to $30 domestically.
And because checking account numbers don’t expire and rarely change (unlike credit cards), recurring eCheck payments are much less likely to be interrupted.
Accepting this form of payment helps subscription-based businesses receive a more reliable stream of revenue.
Good Fit for Customers Who Prefer Traditional Methods of Payment
eChecks are a nice bridge between the convenience and efficiency of digital transactions, and the customers who are hesitant to move away from traditional payment methods.
Because customers can make orders via mail or over the phone, paying by eCheck can feel much like writing a paper check. It’s more secure than handing over credit card information, after all.
Thanks to the many benefits of accepting eChecks, it’s worthwhile to consider whether that method of payment would be a good fit for your business.
To start accepting eChecks, your business will need to have an account at a bank that can process this kind of transaction. Then, you’ll need to choose a payment processor to process the transactions for you.
Some businesses use a check scanner to scan physical checks at the point of sale, turning them into eChecks.
But if you want to accept electronic checks online, you’ll need a payment software like Regpack that can accept this kind of payment.
After you’ve chosen a merchant account provider, you’ll usually need to provide information about your business like your tax ID number, the processing volume you estimate you’ll need, and how many years you’ve been in business.
Image source: QuickBooks
Once you’ve decided accepting eChecks is right for you, you’ll need to choose an ACH provider. Then, collect payment authorization and information from each customer who chooses to pay via electronic check.
Be careful not to incur audits or penalties when accepting and handling sensitive customer information. Limit employee access to sensitive customer information, and make sure all transferred data is properly encrypted.
Once the information is entered into the payment processor’s system, the payment is ready to be processed!
In the digital age, it makes sense that traditional methods of payment—like cash and checks—are falling by the wayside. But many consumers are reluctant to give up the familiarity and security of paper checks.
Thankfully, eChecks are a beneficial combination. They’re more secure than credit cards, but more convenient than traditional checks.
Using the Automated Clearing House (ACH) network, eChecks work by digitally notifying the payor’s bank to send funds to the payee’s bank.
Offering convenient paying options is one way to convert leads into sales. Customers want simple, safe, and easy methods of completing their purchase—especially if your product or service is subscription-based.
And the best software solutions let you automate the payment process so that all you need to do is sit back and watch your revenue roll in.