eCheck | B2B Finance Glossary

What is an eCheck?

An eCheck is a digitized form of a check payment and is also referred to as an internet check, an online check, and a direct debit. Unlike a traditional check payment. which is a paper-based payment that must be processed manually. eChecks are processed electronically by the Automated Clearing House (ACH) Network – the network that initiates ACH payments and connects over 10,000 financial institutions across the US.

When a payer initiates a transaction through an eCheck, money is electronically withdrawn from the payer’s checking account and then transferred across the ACH network before it is deposited into the payee’s bank account.

How do eCheck Payments Work?

The way eChecks are processed is very similar to the way that traditional checks are processed. However, eCheck transactions are much faster than paper check transactions because they eliminate manually filling out a check and sending it in the mail. Paper checks are often an extremely slow version of payment because they are subject to mail float: the time it takes for a check to be sent from the payer to the payee through the postal system.

eChecks require slightly different steps than a traditional check. Here’s what those steps entail:

• Gaining authorization. Before making the eCheck transaction, the payee must first gain authorization from the payer. This can be done through an online payment form, a signed order form, or a recorded phone conversation.
• Setting up the payment. After the payment is authorized, the payer must input the information via online payment processing software. For recurring payments, the payer can include the details of a recurring schedule as part of the payment information.
• Finalizing the payment. After successfully inputting the payer’s information into the payment software, the payee slicks “submit” to initiate the payment so that it can go through the ACH transaction process.
• Transferring the funds. Finally, the payment is withdrawn from the payer’s bank account, and the online payment software sends an official payment receipt to the payer. Next, the payment is deposited into the payee’s bank account. Like any standard ACH payment, it can take about 3-5 days for the funds to be fully transferred from the payer’s account to the payee’s account.

How can a Business get an eCheck Merchant Account?

Obtaining an eCheck merchant account is similar to getting a merchant account for processing credit cards. To get started, you’ll need to provide the following information: your Federal Tax Identification Number, the number of years your company has been in business, an estimation in regards to the amount of volume your business is likely to process, and any other details about your business that the merchant account provider might require.

Your merchant account provider must review your business’s information to get approved. The process usually only takes a few days.

Are eCheck Payments Secure?

eChecks are vastly more secure than paper checks. Paper checks fall victim to fraud 74% of the time. eChecks are a much safer payment option because, when it comes to paper check payments, on average, eight people will handle a check before it goes through the full payment cycle. Each time a check is exposed to an individual party, it increases the risk of being tampered with.

eChecks eliminate the need for checks to go through the postal system or for payments to be handled by multiple people. Instead, eChecks ensure that the payment involves only two parties: the payer and the payee.

Additionally, unlike wire transfers, eChecks can be reversed. That means the payment can easily be changed if there is an error or an issue on the payee’s side.

Finally, Regulation E protects those who become victims of fraudulent eCheck charges by outlining the steps to report the problem and the steps the financial institution must take to protect the parties involved.

What Kinds of Payments can be made with an eCheck?

Compared to credit card payments, eChecks have much lower fees associated with them. In fact, credit card payments are tied to punitive transaction fees that can significantly drag down a business’s bottom line. As a result, eChecks are often used for large transactions such as buying real estate, making car payments, or initiating B2B transactions.

eChecks can also be used for recurring payments. In fact, a recurring ACH payment or a recurring direct debit payment is really just a recurring eCheck payment. Recurring eCheck payments allow payees to automatically receive funds for their goods and services on a recurring basis – usually on the same day every month.

What are the Benefits of Accepting eChecks?

eChecks come with all sorts of benefits, including the following for businesses:

• Low transaction costs
• Faster processing times than traditional checks
• Easier recurring payments with less breakage (bank account numbers change far less frequently than credit card numbers)
• More security than paper checks (traditional checks are very vulnerable to being tampered with)
• Ease of use for international payments
• Higher caps than other payment methods
• Ease of use for remote payments

What are the Best use Cases for eChecks?

• Recurring payments
• Scheduled donations
• Large ticket items
• B2B payments
• Subscription services
• Membership payments
• Alternate payment methods for customers