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What Is an eCheck? Your Guide to Understanding How Electronic Checks Work

Published on 10 min read

Also known as a direct debit, an eCheck contains the same information as a paper check, only the entirety of the transaction is managed digitally.

In this blog, we explain how eChecks work, how they differ from paper checks and ACH, and why businesses benefit from accepting them.

AR professional sitting on a stack of coins, looking at an eCheck on their mobile device

Electronic checks have come a long way since they made their first appearance in 1998. (Fun fact: the very first eCheckwas issued by the US government to a contractor for an Air Force project in the amount of $32,000.) But this convenient payment method has remained steadfast in its simplicity and efficiency.

Faster than a paper check and cheaper to process than credit cards, the eCheck is a great way to make customers’ payment experience more convenient while modernizing your accounts receivable (AR) processes.

In this article, we’ll answer common questions about eChecks such as:

What is an eCheck (and how is it different from a paper check)?

An eCheck is a payment method that contains the same information as a paper check (i.e., checking account number, bank routing number, and payment amount), only the entirety of the transaction is managed digitally.

In the United States, eChecks run off the Automated Clearing House (ACH) network. ACH payments are managed by the National Automated Clearing House Association (NACHA), a non-profit electronic network that operates under the Federal Reserve. Other countries like Canada have their own payment clearing systems.

An eCheck payment is a type of direct debit. This is different from a direct deposit due to which party is initiating the transaction. An eCheck is a “pull” payment, because the payee (the seller) is the one initiating the transaction, thereby “pulling” the funds from the payer’s (the customer’s) account. In contrast, a direct deposit is a “push” payment, because the payer is the one initiating the transaction, thereby “pushing” the funds from their account to the payee’s.

Electronic checks are a popular payment method for high-cost items because they’re not subject to the same costly processing fees as credit card payments. They’re also often used for recurring payments like rent.

When using eChecks to make recurring payments, customers only have to provide authorization once (at the outset when their payment is first being set up). This makes eChecks a convenient method for businesses that collect payment via subscriptions or membership fees.

Is an eCheck the same as an ACH?

In the US, all eCheck payments pass through the ACH network, but not all ACH payments are eChecks. This difference matters because the fees and processing channels will vary depending on the type of ACH transaction.

ACH payments also aren’t to be confused with wire transfers. The ACH network processes multiple transactions in batches, whereas wire transfers are initiated one at a time. Because of this, wire transfers cost more to initiate than ACH payments. Wire transfers also can’t be reversed, whereas ACH transactions can (if you catch them in time), making wire payments less secure.

Electronic Funds Transfer (EFT) is also a term that gets used interchangeably with ACH, but it’s worth noting the difference. An EFT is a general term that refers to any type of electronic transfer of funds from one bank account to another. An EFT could be anything from a wire transfer, to an ACH, to an eCheck.

What are the differences between EFT, wire, ACH, and eCheck?
Sources: plaid.com/resources/ach/ach-vs-wire-transfers, 2022 AFP Payments Cost Benchmarking Survey

How does eCheck payment processing work?

Because the ACH network processes payments in batches, it can take two to five business days for the funds to appear in your account when a customer pays via eCheck. The time it takes for a paper check to settle is about the same (three to five business days). But since eChecks don’t require you to wait for the check to arrive in the mail and then go to your bank branch to deposit the money, they’re overall a faster payment method than paper checks.

How eCheck payment processing works

Here are the steps involved in processing an eCheck payment:

1. You request authorization from your customer

You’ll need to first request authorization from a customer that okays the transfer of the funds from their account to yours. You can do this through:

  • An authorization form
  • A signed contract
  • An order form

This documentation can exist in physical form or online. Accepting the terms and conditions of a website can also count as authorization. You can also request authorization from a customer over the phone, you just need to ensure the phone call is recorded.

2. You capture the customer’s payment details

To process the payment, you’ll need to gather the same information from the customer that would exist on a paper check, such as their company name, bank account number, bank routing information, and a dollar amount.

You can gather this information through the same mechanism as the authorization, such as through a form. If setting up a recurring payment, you’ll gather details about the payment schedule at this time too.

3. Payment processor receives payment details and initiates payment

Once you have this information, you’ll provide it to your payment processor, who will submit the payment details to the ACH network.

It’s worth noting that an ACH payment can be rejected later if the payer’s account has insufficient funds. A direct debit can appear to go through initially, but because it takes a day or two for a financial institution to verify the transaction, it can still get rejected if the payer doesn’t have enough funds in their account.

4. Funds appear in your business account

Twenty-four to forty-eight hours after the transaction has been initiated, you should receive confirmation from the bank that it has been approved. The funds will be withdrawn from your customer’s checking account and deposited into your business’ account.

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How safe are eChecks?

Electronic checks are inherently more secure than their paper counterparts. Paper checks can be lost in the mail or intercepted by bad actors.

Every transaction that passes through the ACH network—eChecks included—are encrypted, providing a layer of protection for both buyers and suppliers. Also, unlike wire transfers, an ACH payment can be reversed within a certain window of time (no later than five business days after settlement), making them less vulnerable to fraudulent activity.

Because you must directly request the customer’s approval to initiate a direct debit, this also gives you some assurance that the payment details weren’t obtained fraudulently (as can be the case with credit card details, leading to costly chargeback fees for merchants).

Bank account numbers also change less often than credit card numbers, creating less opportunity for the payment to fail, especially when it comes to recurring payments.

The most and least secure B2B payment methods

Learn more about the least and most secure payment options for business-to-business transactions here.

What are the advantages of electronic checks?

Sellers have a lot to gain from accepting a higher volume of eChecks from their customers, including:

  • Cost savings compared to paper check and credit card processing
  • Faster processing times compared to paper checks
  • More opportunities for back-office automation
  • A more convenient payment experience for customers

We’ll explore each of the benefits of accepting eChecks in more detail below.

1. eChecks are cheaper to process than paper checks and credit cards

Bank of America reports that it costs between $4–20 on average to process a single business check. This is based on the price and shipping of the physical check in addition to the time it takes accounting employees to write, mail, collect, and reconcile the check.

And when it comes to credit cards, processing fees can be between 1.3% and 3.5% of every transaction, with the average being 2%. On high-cost items, this quickly becomes very expensive for suppliers.

In contrast, it can cost as little as $0.10 to process a single eCheck payment (although rates will vary depending on your merchant account provider).

These low fees make eChecks an appealing option for your business if you accept large or recurring payments.

2. eChecks have faster processing times, leading to faster cash flow

Compared to paper checks, eChecks don’t require the same upfront effort from customers to write and mail them. You also don’t need to wait for an eCheck to arrive in the mail before processing the payment. This cuts down the overall payment time for eChecks significantly.

Through the US Postal Service, commercial mail deliveries take an average of four to five days. Add this to the three to five days it takes for a check to settle (without considering any delays due to staff having to prepare and deposit the check) and the overall time it takes to receive the payment is seven days minimum. In contrast, the overall time it takes to receive an eCheck payment is just two to five business days once you’ve received the authorization.

With faster deposits, your business can close out receivables and access its cash flow sooner (a benefit that no one can afford to overlook in the current recessionary environment).

3. eChecks create less manual accounts receivable work

Compared to their paper counterparts, it’s easier to automate the preparing, processing, and reconciling of eChecks. With 85% of AR teams still matching some degree of their payments with remittance advice manually, any time savings can’t be overlooked.

With the right accounting software, you can arrange for customers’ direct debits to be made on a recurring basis automatically. The account information and authorization only need to be captured once.

You can also automate the reconciliation process for eCheck payments. If you collect customers’ payment information from an online payment portal, you can have them identify which invoice(s) they’re paying at the same time and feed that information back to your enterprise resource planning (ERP) system. This takes care of the cash application process for you.

If processing eCheck payments directly with the bank, you can still automate the cash application process with help from cash application software. This technology can take the remittance files from the bank and use artificial intelligence to match the correct payment to the correct invoice(s) in your system.

With more opportunities for automation, accepting eChecks can reduce your team’s manual labor involved with processing payments.

4. eChecks provide a better customer experience

With the potential for automatic recurring payments, eChecks are not only convenient for your accounting team, but your customers too. Even for one-off eCheck payments, you can give customers a seamless payment experience by allowing them to save their payment details in a digital wallet with help from AR automation software.

Even though checks are still frequently used in B2B payments, customer preferences are increasingly leaning toward digital payments. A survey we conducted of 400 CFOs found that since the pandemic’s onset, 40% of CFOs say they see checks being used less often, due in no small part to digitizing more of their accounting operations.

Embracing digital payment methods like eChecks helps you give customers the payment experience they’re looking for—one that prioritizes convenience and digitization.

More frequently asked questions about eChecks

Can an eCheck be processed on weekends?

Electronic checks cannot be processed on weekends. The eCheck process involves financial institutions, which typically operate on business days only. If your customer issues an eCheck payment on a Monday, it will likely be authorized by Wednesday or Thursday, but the funds won’t reach your bank account until early the following week.

Can an eCheck be canceled?

Electronic checks can be canceled. You and/or your customer can cancel an eCheck payment depending on which stage of the process it’s in. If the funds are already en route to your bank account, you may have to issue a refund. Your payment processing provider should be able to support you with this.

Can an electronic check be declined?

Electronic checks can be declined. If your customer has insufficient funds in their bank account, their eCheck payment will bounce just like a paper check would. It’s up to you to decide whether you levy non-sufficient funds (NSF) charges for bounced eChecks.

Can anyone use eChecks?

Anyone can pay with an eCheck (or direct debit). You’ve likely already used this payment method for personal payments such as rent or a gym membership. For business payments, eChecks are an especially good fit for companies that have recurring payment models, sell high-priced items or services, or simply want to support customers’ desire to pay electronically.

How do you start accepting eChecks?

To start accepting eChecks, you’ll need to work with a payment processor or payment gateway in coordination with your bank. They should help get you set up with the software and hardware (if you plan on accepting eChecks at your point of sale) needed to collect eCheck payments.

You’ll also need to sign up for an ACH merchant account, which your payment processor should be able to support you with.

Versapay can help you accept eChecks

When you offer your customers the convenience of paying by eCheck, you’re also giving yourself the gift of more efficient AR processes, better cash flow, and fewer unpaid invoices. It’s an accounting upgrade that will pay off long into the future.

Versapay allows you to accept eCheck payments, in addition to other types of ACH payments and credit cards. We help you capture payments from all your sales channels including ecommerce, point of sale, and on account. We seamlessly integrate with your ERP so that you can automatically post payments as they come in.

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