What is an eCheck? How Your Small Business Can Accept Them

Nov 23, 2021

In today’s business climate, it always pays to offer a variety of payment methods to suit every consumer’s preference on the market. Offering convenient payment types ensures that both customers and small businesses keep the money flowing easily and securely. 

An eCheck Defined

The best way to describe eChecks is that it is essentially a “digital version” of a paper check. Other terms used to identify eChecks include an online check, direct debit, and an internet check. 

eChecks utilize the Automatic Clearing House (ACH) to direct debit from the customer’s checking account and directly into the business bank account of the merchant. This is all done with the assistance of a payments processor. 

Because eChecks are transmitted electronically, these transactions are faster, more secure, and easier. 

Just about any checking account today provides the capability of sending an eCheck as long as this option is made available by the bank to be used online. Wherever a paper check is used, an eCheck is sure to be a legitimate payment option. 

How Are eChecks Different From Paper Checks?

Paper checks are, by its very definition, just paper and may be well on their way to becoming obsolete. This is due to the fact that customers are simply writing fewer checks for their day-to-day expenses. They would much rather use digital payment methods such as eChecks. 

Retail sales online in the US went up 15% in 2018, reaching $517 billion in 2018. It is still expected to obtain an even larger share of commerce overall. This proves that purchases are largely made online, prompting the creation of new forms of payment that are completely digital. These payments are characteristically invisible, effortless, and quick. 

The perks of using eChecks are that they take considerably less time to process than their paper counterpart. Here are a few reasons: 1.) It takes more time and effort to deposit paper checks at the bank. 2.) Paper checks have a longer processing and hold times than eChecks, 3.) Since eChecks are digital, it speeds up the process considerably. 

How An eCheck Works

Before a business can accept an eCheck payment, they first must acquire the customer’s pertinent bank information such as their routing and checking account numbers. Businesses can obtain this information online, by phone, or in paper form. Many businesses offer a secure page on their website in which customers can safely submit this information as well. 

Securing this information allows the merchant’s bank to communicate directly with the customer’s bank. As soon as the funds are verified, the direct debit takes place through ACH. 

These are the key players involved in the ACH electronic check payment processing: 

1. The Originator: This is the merchant that is “cashing” the eCheck. The Originator begins the direct deposit process by collecting the customer’s pertinent bank account information referenced previously above. 

2. The Business Bank: This would be the merchant’s bank or the Originating Depository Financial Institution or (ODFI). The business bank enters the ACH transaction at the request of the merchant, collects the payments from a diverse number of customers, then sends the payments in the batch form to an ACH operator. 

3. ACH Operator: The ACH Operator sorts the fund request and finally settles the money into the merchant’s business bank account. 

4. Customer’s Bank: The Receiving Depository Financial Institution (RDFI) obtains the request, verifies that the funds are available, then debits the customer’s bank account and credits the merchant’s business bank account. 

Previously, ACH funds used to take several days to post, however, the National Automated Clearinghouse Association or (Nacha) that governs ACH, has introduced a new feature that allows same-day funding.  

The Advantages Of Using eChecks

eCheck transactions make sense if your business uses recurrent payments and direct deposits. However, there are more benefits to adopting the use of eChecks for your business. Here are the three major perks associated with eChecks:

1. Easy To Use

If your business typically processes traditional paper checks or has customers set up on recurring transactions, eChecks can shave off a considerable amount of time. 

For B2B transactions, ACH payments offer a secure and hassle-free method of payment. Customers will benefit as they will have yet another easy form of payment. The risk of human error is greatly reduced during payment processing. 

Reconciliation is a snap since eChecks offer a digital transaction log that transmits this data to your business accounting system.

2. Dependability

Considered a reliable way of transferring funds, eChecks utilize the ACH network in order to process all transactions. The ACH system is managed by the Federal Reserve and the National Automated Clearing House Association, which follows stringent regulatory guidelines for member banks and providers.

Another plus to consider is that eChecks are handled less than paper checks. This dramatically speeds up the transaction process and mitigates the risk for fraud.

If you take recurring payments from your customers, eChecks are a more “consistent payment method” than credit cards. Customers don’t typically change their bank account information on a regular basis, greatly reducing “payment gaps” as opposed to having credit cards on file. Credit cards are likely to change every few years. 

3. Affordability

Another great advantage of eChecks for merchants is their affordability. The processing fees for eChecks are much lower than credit cards where they usually command 1.5% to 3.5% for every transaction. Conversely, eChecks charge on average between $.30 to $1.50 per transaction. Overall, by using eChecks, payment processing costs could be reduced up to 60%.

4. Safety

Merchants and customers can use eChecks with confidence as eChecks are generally safe. For customers, their sensitive bank information such as bank account and routing numbers are protected thanks to data encryption. Also, since there is no paper check to handle, such as sending and cashing a paper check, there is less likelihood for the check’s information to be compromised. 

For merchants, eChecks are more difficult to cancel or chargeback as opposed to paper checks and credit card payments. High-risk industries would do well if they accepted eChecks in their payment method arsenal. 

How To Accept eChecks In Your Small Business

Accepting eCheck payments can dramatically increase your revenue as well as broaden your customer base. This is especially true for US-based businesses that accept recurring purchases from their customers. If you are looking to accept eChecks as a payment method, here is what you would need to do:

  1. Open up a merchant account with an ACH provider.
  2. Obtain authorization from the customer via a recorded phone call or a digital signature.
  3. Submit payment information, including checking account numbers, the routing numbers, the total bill amount, and the billing schedule. 
  4. With the help of your ACH provider, you can now run eCheck payment processing. 

To ensure an extra layer of security, choose only to work with ACH providers that have a proven track record of reliability and are reputable. Also, make certain that both your business information and your customer’s data are encrypted. 

Grant authorization to employees for accessing any financial data only when it is absolutely necessary. Finally, if you discover any fraudulent transactions, report this immediately to your ACH provider.  

The Downsides Of Using eChecks

Since no payment method is perfect, eChecks also have a few shortcomings that merchants must be aware of. 

One of these disadvantages is that the processing time is slower. In order for eChecks to process completely, it typically takes between 3 and 6 business days. Credit and debit card payments, however, take between 1 and 3 days. 

Depending on the business, the slower times may be fine, even flexible for some, while other businesses might not fare well with this delay on payment collection. 

Another challenge to overcome is that many customers are still largely unfamiliar and accustomed to using eChecks. This could pose a problem if your business decides to introduce eChecks as a form of payment. The key is to take every opportunity to ease your customer’s worries by educating them through blog post articles on your website and even through social media channels. 

In spite of the aforementioned challenges, if a business adopts the acceptance of eChecks, it opens up more opportunities for conducting business as well as broadening its customer base. 

Should You Consider eCheck Payment Processing For Your Business?

Although the acceptance of checks may seem archaic in the age of cryptocurrency and mobile wallets, it is not quite time to bid them farewell for good. 

Accepting checks may not be essential, but they continue to have a place in the payment world. This is especially the case for eChecks. If direct competitors are offering this form of payment, it might be a good idea to follow suit. 

With the steep cost of credit card processing and the need for customers to have a myriad of payment options, the acceptance of eChecks would be a welcomed tool to have in your arsenal.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.