How Do eChecks Work? Everything You Need to Know About this Electronic Payment Method

The internet revolution transformed how we connected and did business with one another. By 2004, new federal laws allowed for electronic banking and payment processing — like eChecks — sparking innovation in financial and business operations.

Today, processing eChecks and other forms of electronic payments are so common that 50% of Americans between 18 and 54 did not write a single paper check in 2023. This shift is just one reason why we’re diving into how eChecks work – and why they’re crucial for modern businesses.

What Is an eCheck?

The Basics: Electronic checks — or eChecks, for short — are a digital version of traditional paper checks. eChecks are processed through the nationwide Automated Clearing House (ACH) Network to facilitate an electronic funds transfer (EFT) between accounts. (This is why they are also often called ACH transfers.) Once all parties give the green light through a secure authorization method, the funds zip from the payer’s account and land in the payee’s account.

The History: After the boom of the internet in the ‘90s came online banking in the ’00s. The Check 21 Act (a federal law enacted in 2004) was a game changer, allowing banks to handle checks electronically. Faster, more effective, and more secure than traditional paper checks, eChecks caught on quickly and are now a go-to payment method for consumers and businesses alike.

The Comparison: There are many reasons why both consumers and businesses prefer eChecks over traditional paper checks. eChecks are processed through a secure, encrypted platform with protective measures against fraud, and funds are deposited in just one to two business days. Plus, eChecks are more sustainable and less costly since there’s no paper or physical handling. Overall, eChecks cut down the risks and boost benefits, making them a smarter choice for quick, secure payments.

How Are eChecks Processed?

eChecks are processed through the ACH Network. Think of it like a digital highway connecting all U.S. banks and financial institutions — plus, it’s safe and secure.

  1. Authorization: It all starts when the payer is authorized to begin an electronic transfer of funds (ETF) from their bank account to the payee’s account.
  2. Information: Then, the payee gathers the payer’s bank account number, routing number, and dollar amount,
  3. Processing: The payee sends this information to their bank, which then passes it along to the ACH Network.
  4. Disbursement: Next, the payer’s bank processes the transaction, transferring the funds straight into the payee’s account within one to two business days.
  5. Protection: Every step of the transaction is time-stamped and securely tracked, providing both accuracy and traceability.
  6. Extras: Each bank has its own cybersecurity protection and fraud detection measures in place to minimize risk to both the payer and payee, keeping everyone’s money safe.

Electronic Checks, ACH Transfers, Paper Checks: What’s the Difference?

When it comes to processing payments, choosing between electronic checks and traditional paper checks is crucial. Both have their advantages, but the right choice depends on the specifics of each transaction. Consider factors like cost, speed, and convenience. Here’s a closer look at the benefits of eChecks / ACH transfers compared to traditional paper checks.

eChecks/ACH transfers:

  • Lower Fees: Compared to credit cards, which typically charge transaction fees between 1.5% to 3.5%, eChecks usually only incur fees ranging from $0.30 to $1.50 per transaction, making them a more cost-effective option.
  • Enhanced Security: ACH, the network that processes eChecks and other forms of electronic payments, is federally regulated, secure, and encrypted.
  • Convenience: eChecks are ideal for recurring payments, like subscriptions or monthly bills.
  • Processing Time: eChecks/ACH transfers usually only take a couple of days to process, and enhanced ACH processing can often provide same-day payments.

Paper Checks:

  • Higher Costs: Paper checks often incur higher processing fees due to the costs associated with printing, mailing, and handling, as well as potential bank fees for check deposits.
  • Lower Security: Paper checks are more susceptible to fraud and theft if lost or intercepted during mailing, and they contain sensitive information, like routing numbers, payer’s name, payee’s name, and more.
  • Manual Effort: Writing, mailing, and tracking paper checks require more labor and time compared to the automated process of eChecks, making them less convenient for recurring payments.
  • Longer Processing Time: Paper checks can take several days to clear, as they need to be mailed, received, and manually processed by banks, leading to potential delays in payment completion.

Do you know how popular the ACH Network is among American consumers and businesses? More than 31 billion payments worth $80 trillion total were processed in 2023 according to Nacha. The most transactions occurred in the business-to-business (B2B) and peer-to-peer (P2P) sectors.

Benefits of eChecks for Professional Services Firms

The business world is evolving at a rapid pace. With faster, more efficient technology comes more need to provide services and process payments as quickly as possible. In fact, by 2025 older, more traditional ways of conducting business and processing payments will likely become obsolete, according to a recent report by PwC.

eChecks/ACH transfers are a game changer for professional services like law firms, consultants, and accounting firms. Compared to paper check processing, electronic check processing improves the efficiency and security of your financial transactions—making the client experience more positive in the process.

eChecks Provide Efficiency

eChecks help cut down on costs and time. Without the hurdles of paper checks — no printing, handling, or mailing needed — everything moves faster. This means payments clear quicker, improving your cash flow and clearing out Accounts Receivable.

eChecks Provide Convenience

eChecks make business easier for both the professional service provider and their clients. Clients won’t have to bother with writing, handling, or mailing checks. Instead, they can just click and authorize payments online. Thinking about ongoing services? Recurring payments are a breeze to set up — perfect for retainers or regular client services. This smooth process cuts down on payment delays, leaving everyone more satisfied.

eChecks Improve Cash Flow

eChecks are beneficial in reducing the age of your receivables. Traditional paper checks can take four to six weeks or more to arrive from late-paying clients, tying up your firm’s cash flow and capital. With eChecks/ACH, payments are processed much faster, allowing firms to access funds more quickly and reducing the financial strain of aging receivables. This means more available capital to reinvest in your business, improving overall financial health and stability.

More eCheck FAQs

How do I pay by eCheck?

To make a payment by eCheck, simply provide your bank account number, routing number, and proper authorization to the payee, which is usually shared via an online payment form, a signed document, or over the phone.

Can an eCheck be processed on weekends?

No, eCheck processing pauses on weekends and federal holidays since the ACH Network only operates on business days.

Can an eCheck be canceled?

Yes, but timing is everything. An eCheck can be canceled before it’s fully processed. Immediately contact the bank or payment processor to put a stop to a payment, if needed.

Is it safe to get paid by eCheck?

Absolutely! Getting paid by eCheck is safe since it is processed through the ACH Network, secured with encryption and authentication protocols. This helps keep the fraudsters at bay and your money safe.

How do I start accepting eChecks?

Starting is easy. Just connect with a payment processor that can handle ACH transactions. Then, integrate this eCheck option into your payment system and make sure you get the proper information from your clients to pull funds from their accounts. It’s a bit of setup, but totally worth it for the ease and security.

Streamline eCheck/ACH Payments with QuickFee

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