What Is an eCheck & How Does It Work? Here’s Everything You Need to Know

Introduction 

An eCheck, short for ‘electronic check,’ represents the digital evolution of the traditional paper check payment method. This payment method has streamlined the process of monetary transactions in the digital world.

Functioning as a secure and efficient electronic alternative to conventional paper-based checks, eChecks empower individuals and businesses to electronically transfer funds. They replicate the functions of traditional checks without the need for paper, ink, or physical transportation. Leveraging eChecks optimizes your financial operations, enhancing their discoverability and efficiency for both payers and payees.

In this article, we will explore what eChecks are, and how they simplify life for both payers and payees. Additionally, we will share a few advantages they bring to the financial landscape.

What Is an eCheck or Electronic Check?

An eCheck, or electronic check, is like a digital version of a paper check. It’s a way to pay from your checking account without paper. Instead of a paper check, you share your bank details and payment info using a form. This gets your payment ready to go electronically.

eChecks play a pivotal role by modernizing payment methods, replacing paper checks with efficient digital transactions, and enhancing financial accessibility and speed. This transformation streamlines interactions for individuals and businesses alike.

How are eChecks Different from Paper Checks?

In the financial landscape, you’ll often come across these two terms: eChecks and paper checks. In both methods, money is directly drawn from the payer’s account and deposited into the payee’s account.

eChecks and paper checks differ from each other in the method of transaction. While eChecks are digital and involve sharing payment details electronically, paper checks are physical documents filled out by hand. 

Let’s take a look at an overview of the differences between eChecks and paper checks:

eChecks streamline processes with speed and convenience, whereas paper checks require manual handling and processing. Still, people often prefer using paper checks because of their familiarity with them. Both these payment methods can coexist with each other and can be used depending on the convenience of the payee. 

Key Differences Between eChecks & Paper Checks

eChecks	Paper Checks
Sent and received electronically, its data is stored within a computer system	A personalized piece of paper in a book format with issuer and user info
Secure with multi-layered protection	Carries risk of theft or loss
Lower costs due to lower user charges, minimal printing and transit costs	Involves higher charges due to increased printing, handling, and transit costs
Lower processing time and amount can be transferred instantly	Paper checks processing time is higher due to time taken for courier and actual processing by the bank
Nothing needs to be carried.	Must carry the checkbook with you.

How Does an eCheck Work?

Let’s understand how electronicchecks work. As the name suggests, eChecks, or electronic checks are processed electronically. Money is electronically withdrawn from the payer’s checking account, transmitted via the ACH (Automated Clearing House) network, and deposited into the payee’s checking account. 

E-checks reach their destination faster compared to traditional paper checks, as paper checks involve added logistical steps for successful payment. With paper checks, the recipient’s bank verifies the check and then sends it to the originating bank for verification and this process normally takes time to complete. 

E-check processing is swifter, but it relies on the same information. The person initiating the electronic check payment must provide their bank routing number, account number, email address, and authorization.

Processing an electronic check involves four key steps:

How does eCheck payment processing work?

• Obtain authorization

Before a transaction can proceed, the company needs permission from the customer. This can happen through an online payment form, a signed order form, or even over the phone.

• Payment setup

 After receiving approval, the company enters payment details into its online payment processing software.

• Finalize and submit

 The company saves or submits the payment details in the software. This marks the beginning of the ACH transaction process. 

• Confirmation and depositing funds

 The payment is automatically taken from the customer’s bank account. The online system then provides the customer with a payment receipt, and the payment amount is deposited into the company’s bank account. 

Typically, within one to three business days after initiating the ACH transaction, the funds arrive in the merchant’s bank account.

What are the Benefits of eChecks?

Now that we have learnt about the eCheck payment processing, let us explore the various benefits offered by eCheck payment processing.

• Simplified Digital Transactions: eChecks streamline online payments, eliminating the hassle of physical checks and enabling swift and secure transactions.
• Global Reach: eChecks transcend geographical boundaries, facilitating payments worldwide with ease and efficiency.
• Integration with Internal Financial Software: Seamlessly connect eCheck transactions with internal financial systems, optimizing record-keeping and enhancing organizational efficiency.
• Error Reduction: Automated processing minimizes human error, ensuring accuracy and reliability in financial transactions.
• Easy to Monitor: Real-time tracking capabilities empower users to monitor eCheck transactions effortlessly, enhancing transparency and control.
• Enhanced Process Efficiency: eChecks streamline payment workflows, reducing administrative burdens and increasing overall operational efficiency.
• Cost-Effective: Compared to traditional payment methods, eChecks offer significant cost savings, with lower transaction fees and reduced administrative expenses.

What are the Problems with eChecks?

Even as eChecks offers various benefits, there are a few potential challenges. 

• One of the significant challenges is processing delays and errors. eChecks are subject to stringent processing deadlines and processes because they are processed via the ACH network. Payments may be refused or delayed if any information needs to be completed or accurate, which can annoy Customers and businesses.
• Another major drawback of an eCheck payment is the acceptance. Most merchant service providers prefer credit or debit card payments rather than eChecks. 
• eCheck, like any other electronic payment, is subject to fraudulent risk. Customers should make sure that they only share their bank details to trusted merchants and keep a tight eye on their accounts to ensure no fraudulent transactions are occurring.

However, the benefits offered by eChecks far exceed the potential challenges. If your business often receives large credit card payments and wants to increase recurring payments while reducing merchant fees, consider accepting eCheck payments.

How can HighRadius B2B payments revolutionize your eCheck payment processing?

HighRadius B2B Payments revolutionizes eCheck processing with its extensive suite. Order to Cash, Treasury & Risk, and Record to Report Suites are all easily integrated with the suite’s stand-alone payments module. eCheck transactions are safe, quick, and economical thanks to essential components, including Interchange Fee Optimizer, Surcharge Management, and Payment Gateway.

The Payment Gateway enables the safe processing of various payment methods, including credit cards and ACH, and includes features like tokenization for enhanced security. Surcharge management ensures compliance and accurate surcharge calculation while offering flexibility regarding payment alternatives. Interchange Fee Optimizer minimizes merchant fees by optimizing transaction data and supporting multiple payment processors. 

Integration with SAP extends payment workflows and enables sales orders and invoices to be processed efficiently inside the SAP system. The portfolio’s tokenization and data interception solutions reduce PCI compliance costs while enhancing security. Bank-to-bank transactions are accelerated by processing ACH/eChecks, improving cash flow, and reducing fraud risk. 

The HighRadius B2B Payments Suite offers noteworthy benefits such as a 90% decrease in card processing expenses, reduced buyer friction, secure payment data handling, improved working capital, and increased processing efficiency. Phased deployments ensure speed to value and allow businesses to gradually implement complex payment functions that align with their needs and business units. HighRadius B2B Payments simplifies, secures, and streamlines financial transactions by offering companies eCheck processing solutions. 

FAQs

1. How long does an eCheck take to process?

Processing of eChecks usually takes three to five business days. The intricacy of the transaction, the bank’s or payment service provider’s policies, and any potential delays in the transaction’s verification can all affect how long it takes to perform an exact transaction. 

2. What is the fee for eCheck?

eCheck costs may vary depending on the bank or service provider engaged in the transaction. eChecks usually have lower fees than credit cards or other conventional payment options. While some companies handle eChecks for free, others may charge a small fee for each transaction. 

3. Can an eCheck be declined?

eChecks may be declined due to insufficient funds, inaccurate account details, fraud concerns, or processing issues. If a payer’s account is flagged for fraud or misuse, the transaction may be refused. To reduce rejection risks, both parties must ensure funds availability and accurate information.

4. Does eCheck have a limit?

eCheck transaction limits, determined by the payer’s bank or service provider, depend on account type and security factors. Ranging from thousands to tens of thousands per transaction, these limits help prevent fraud and insufficient funds. Understanding and adhering to these limits is essential for smooth transactions and financial planning.

5. How to send an eCheck?

To send an eCheck, you’ll need to follow these steps:

1. Enroll in an eCheck Service: Sign up for an eCheck service offered by your bank or a payment processor.
2. Provide Payment Details: Input the necessary payment information, including the recipient’s account details and the payment amount.
3. Authorize the Payment: Give your authorization for the eCheck transaction. This could involve an online form, a signed agreement, or an electronic confirmation.
4. Submit the eCheck: Once authorized, submit the eCheck for processing. The payment will be electronically withdrawn from your account and sent to the recipient.

By following these steps, you can easily send an eCheck for secure and efficient digital transactions.

6. How do I use an eCheck?

Let’s learn how to pay with an eCheck. Follow these steps to accept eCheck payments:

1. Setup ACH Merchant Account: Establish an ACH merchant account to directly withdraw payments from customers’ bank accounts. Provide your federal tax ID, years in business, and estimated processing volume. Approval may take a few days.
2. Get Customer Authorization: Similar to signing a paper check, customers must authorize eCheck withdrawals. They can do this via contract, order form, or online payment form submission.
3. Payment Details Setup: Customers input checking account, routing number, payment amount, and payment frequency (one-time or recurring) in an online payment form.
4. Submit Payment Information: Trigger the transaction by clicking “save” or “submit” in your payment processing software.

7. How to deposit an eCheck?

eChecks can be deposited just the way you deposit paper checks. You can deposit at banks, credit unions, ATMs, and branch remote deposit capture systems. By employing Patented technology, banks and companies can easily verify the authenticity of every eCheck, which decreases fraudulent activities.

8. Are electronic checks safe?

Electronic checks, generally secure, employ encryption and authentication for transaction safety. Adhering to best practices, such as safeguarding personal data and choosing trusted payment processors, enhances security. Users must prioritize diligence to mitigate risks effectively in electronic transactions.

9. How do banks verify eChecks?

Banks verify eChecks by following these steps:

1: The bank reviews the eCheck transaction details, including the payer’s account information, payment amount, and authorization.

2: It checks if the payer’s account has sufficient funds to cover the payment.

3: The bank then validates the routing number to ensure it corresponds to a legitimate financial institution.

4: The bank confirms that the payer’s account is valid and active.

5: Banks employ various security measures to detect and prevent fraud, ensuring the authenticity of the eCheck.

6: The eCheck is processed through the Automated Clearing House (ACH) network, which facilitates secure fund transfer.

By rigorously following these steps, banks ensure the legitimacy and security of eCheck transactions.

10. Is an eCheck the same as an ACH?

An eCheck, akin to a digital rendition of a paper check, utilizes the Automated Clearing House (ACH) network for processing. While eChecks are typically single payments, ACH payments are frequently employed for recurring transactions, direct deposits, and significant transfers. 

11. What’s the difference between eChecks and credit card payments?

Electronic checks debit funds directly from a bank account, while credit card payments rely on borrowing against a line of credit. Electronic checks typically have lower processing fees and longer processing times compared to credit cards.

12. How long do echecks take to process?

The standard processing period for eChecks ranges from 3 to 5 business days. Transactions involve the transfer of funds between bank accounts via an ACH network. This method operates in batches, extending processing durations beyond instantaneous transfers, contributing to the timeframe for completion.

13. Do eChecks process on weekends?

eChecks aren’t processed on weekends or holidays due to ACH processing. Deposits made on weekdays typically take a couple of days to clear. But if you deposit it on a Friday before a bank holiday, it might take a couple of days for the funds to show up.

14. What Information is Required for eChecks Processing? 

While e-check processing offers swiftness, it requires essential data. Initiators must provide email, authorization, account, and bank routing details for electronic check payments. Despite speed advantages, the requisite information remains consistent, ensuring secure and efficient transactions.