Electronic Checks for Businesses: Definition, Benefits, and Implementation

The 2021 Q2 volume of eCheck payments reached a 7.3 billion count with a value of $18.4 trillion. That’s a nearly 25% increase compared to last year. Such rapid growth makes more and more business owners consider offering this payment method to their clients. But what is an eCheck and how does it work? Read ahead to find out the eCheck meaning, how such payments get processed, and whether your business can benefit from them.

What Is an eCheck?

An eCheck, also known as an electronic check, ACH transfer, or direct debit, is a digital version of a paper check.

eCheck payments are similar to their traditional counterparts but are transmitted electronically, which makes them an easier, faster, and safer payment method.

What Is the Difference Between ACH, EFT, and eChecks?

EFT is the abbreviation for “Electronic Funds Transfer”. The EFT term covers many types of transactions, such as:

• Wire transfers
• Direct deposits
• ACH disbursements

ACH means “Automated Clearing House” and is the digital network utilized by financial institutions in the US to provide infrastructure for entities that process payments. Essentially, eChecks are an EFT type that implements the ACH network to process financial transactions.

How to Use an eCheck

Electronic check payments utilize ACH to perform a direct debit from a payer’s checking account to a business’s bank with the help of a payments processor.

Before we start explaining how to send an eCheck, it is worth mentioning that such a transaction requires customer authorization which can be done in multiple ways:

• Signing a contract
• Accepting a website’s Terms and Conditions
• Giving verbal consent via a recorded call

A business, on the other hand, needs to have a merchant account to be able to accept such online payments for the goods and services it offers.

How to Make an eCheck Payment: Data Required

To conduct an electronic check payment, the consumer has to provide the same data as they would on a paper check, namely:

• Full name
• Payment amount
• Checking account data
• Bank routing number

As a business owner, you will have to include the following details from your side:

• Company name, address, and years in business
• Bank account details
• Federal Tax ID
• Transaction processing volumes

Parties Involved in eCheck Payment Processing

There are four main parties involved in the payment processing of eChecks:

• Originator. It is the business that initiates the direct deposit process.
• Originator’s bank. The business’s bank, also known as the Originating Depository Financial Institution (ODFI). It aggregates payments and sends them in batches to an ACH operator.
• ACH operator. This party processes the fund requests and settles the funds into the originator’s bank.
• Client’s bank. The customer’s bank or the Receiving Depository Financial Institution (RDFI) receives the request, verifies the availability of funds, debits the client’s account, and credits the originator’s account.

eCheck Processing Steps

Electronic check processing consists of the following steps:

1. Authorization request. First, you will need to receive authorization from your customer.
2. Payment set-up. When the authorization is complete, you should fill up the required details in the online payment processing software. In the case of recurring money transfers, you also have to input the payments schedule.
3. Transaction confirmation. For an automatic withdrawal of funds from the client’s account, all you have to do is submit the details into the ACH system. But how long do eChecks take to process? The money is likely to reach your business account within three to five days from the moment the transmission of funds was confirmed.

Main Security Components of Electronic Check Payments

Electronic checks are significantly more secure than the paper ones. Here are the core security steps an eCheck payment goes through:

1. Authentication - the payments provider verifies the client’s input of the account data, so that wrong or fraudulent information doesn’t get sent to the originator.
2. Encryption - the online payment processing software encodes sensitive details to prevent unauthorized use. Public key cryptography is one of the techniques utilized to cipher the data and protect it in transit. Digital signatures with time stamps also help ensure that eCheck transfers of funds are not duplicated. Besides, the SSL Certificate safeguards the data, encrypts transactions, and enables secure communication.
3. Duplicate detection - this fraud detection strategy monitors and identifies repeated identical eCheck payments and flags them as suspicious activity.

Which Businesses Can Benefit from eChecks?

Now that we have thoroughly answered the question “what’s an eCheck?” you may be uncertain whether your company will benefit from this payment method. eCheck payments are advantageous for a variety of business types, such as:

• Online merchants. Online businesses offering their clients an opportunity to use eChecks have a chance of increasing their profits and improving customer experience, as it is a payment method many clients prefer.
• Organizations processing large payments. Transfers using online checks eliminate middlemen, such as those involved in credit card payment processing. For businesses that have a large turnover, this means no interchange fees involved.
• Subscription-based businesses. If you offer goods or services that require recurring billing, a paper check alternative might be the perfect solution that outperforms even the credit cards. Online checks make auto-pay and auto-renewal functions easy to implement. Besides, checking accounts rarely change, so the payment flow is likely to be uninterrupted in the long term.

If your business belongs to at least one of these categories, it is worth looking into the possibility of integrating eCheck payments.