In our rapidly changing world of finance, getting paid securely and efficiently is always a top priority for all parties involved in a transaction. eChecks, also known as electronic checks, are yet another payment method that aims to fulfill these goals.
Electronic checks are an alternative to traditional paper checks and were created to be processed digitally. In order to send funds, eChecks use the exact information found on paper checks, such as your bank account number and routing number. Electronic checks are sometimes referred to as ACH payments, direct debit, or ACH transfers.
How Does An eCheck Payment Actually Work?
eChecks depend on a system called the Automatic Clearing House (ACH), which enables batches of electronic funds transfers or (EFTs).
Basically, ACH assists banks to exchange transaction data, such as what to debit, what to credit, and to whom, all of this is done electronically.
Here are the actual steps involved:
1. The customer agrees to a predetermined amount of funds to be withdrawn from their bank account.
2. Funds are transferred electronically through the ACH network.
3. The requested amount of funds is transferred from the payer’s bank to the seller’s bank.
4. The funds are ultimately withdrawn from the payer’s bank account and deposited into the payee’s bank account.
Typically, eChecks take between 24 to 48 hours to be verified. The time it takes for the funds to be withdrawn and deposited into the respective accounts can take between 3 to 6 business days. eChecks are not processed instantly since they rely on a third-party system, (ACH), to initiate EFT.
The Benefits And Drawbacks Of Accepting eChecks
Businesses should accept a wide range of payment methods in order to cater to customer preferences. eChecks are yet another payment method that can greatly benefit a business.
However, just like any payment method, there are advantages and disadvantages that should be carefully considered before accepting this method.
eChecks rely on the ACH network in order to process transactions. The entire ACH system is regulated by the Federal Reserve and the National Automated Clearing House Association. Both bodies maintain stringent regulatory guidelines for all participating banks and providers.
2. Easy To Use
If your business frequently processes paper checks or has recurring payments from customers, eChecks are a time-saver. Customers win since they have yet another payment method.
Human error risk is greatly reduced during payment processing. Reconciliation is also simplified since eChecks provide a digital transaction log that enters all data into your accounting system.
Processing fees for eChecks are lower than credit cards. Credit card transactions typically cost between 1.5% to 3.5% for every transaction. Whereas eChecks can decrease payment processing costs by up to 60%.
For customers, eChecks use data encryption to protect sensitive information such as bank account and routing numbers. They also exchange fewer hands.
Data encryption also benefits merchants. It is best to choose the most reputable payment processor to mitigate the risk of getting a bad check.
1. Slow Processing Time
As mentioned earlier, eChecks take between 3 and 6 business days to fully process. If your business requires more efficiency in processing, eChecks may prove problematic if a timely collection is needed.
2. Customers Are Unfamiliar
Many customers have yet to experience the use of eChecks. It greatly depends on your customer base as to whether they will take to using eChecks. However, expanding your payment options always stands to benefit your business.
eChecks offer many benefits as a payment method for your business. To get paid safely and paper-free is never a bad thing. By accepting more payment methods in your business, you are also giving your customers options, further expanding your customer base, and making it easier to get paid.