What are eCheck Payments and How Do They Work?

As a small business owner, you might not have too many customers requesting to pay via electronic check. Having said that, they do have some specific use cases – especially as a more convenient alternative to paper checks.

If your business sells big ticket items or has a subscription-based model, eChecks might be cheaper to accept than credit card payments.

In this article, you’ll learn what eCheck payments are and how they work. We also cover the main differences between eCheck payments and other payment methods, and how your business can benefit from accepting eChecks.

Let’s get started!

What are eCheck Payments?

Electronic check (eCheck) payments – also known as direct debit – are a type of Electronic Funds Transfer (EFT). This is a digital version of a paper check that contains the same information, like bank account details and the payment amount. 

eChecks are processed through the Automated Clearing House (ACH) network.

How do eCheck Payments Work?

Accepting eChecks is similar to accepting paper checks, but everything happens digitally. Here’s a step by step process.

1. Authorization. A customer presents their bank account information for processing, specifically the ABA routing number and their bank account number.
2. Payment initiation. Using the customer’s bank account information, an electronic request is made to the ACH provider to charge or refund the customer in the amount of the purchase, via your website or a Virtual Terminal.
3. Payment Request. The provider receives the electronic request and stores the transaction in the “batch” where the other transactions for the day reside.
4. Settlement. At the end of each business day, a request is submitted to the customer’s bank through the Automated Clearing House (ACH) to charge or refund that particular customer. This is called “settlement” or “settling your batch.”
5. Bank Intervention. Because there is still manual intervention by the bank, electronic checks are not considered “real-time.” The provider’s system waits for the result of the transaction from the bank. This process usually takes two to three (2-3) business days, but has been known to take up to five (5) business days.
6. Approval or Rejection. If sufficient funds are available in the customer’s account, the funds will be deposited into your bank account on file after a seven (7) day clearing phase. If funds are not available, the customer’s bank will send back a response through the ACH to the provider, and the item gets posted as a return to your settlement statement.
7. New Balance. Your account balance will be updated depending on the results of the transactions.

Further Reading: What are ACH Reject Fees?

How do eCheck Payments Compare to Other Payment Methods?

Let’s compare eCheck payments to some common payment methods.

Difference Between eCheck Payments and ACH Payments

An eCheck payment is a type of ACH payment – and it uses the ACH network for processing.

The main difference between the methods is that only the receiver of funds can initiate an eCheck transaction. With ACH payments, either the sender or the receiver can initiate the transaction.

Once the payment is initiated, the technical aspects of an eCheck payment are identical to that of an ACH payment. The processing fees and speed of the methods are the same.

Difference Between eCheck Payments and Wire Transfers

There are several differences between eCheck payments and wire transfers.

• Wire transfers typically take between a minute and one business day to process, while eCheck payments can take up to 5 business days.
• Wire transfers are irreversible, while eCheck payments are reversible.
• Wire transfers are much more expensive to process than eCheck payments – they typically cost $25+ per wire transfer, whereas eCheck payments may cost 50 cents or less per transaction – depending on the transaction size.
• Wire transfers are initiated by the sender, while eCheck payments are initiated by the receiver.
• Wire transfers are one-off payments, but eCheck payments can be either one-off or recurring.

Generally speaking, a wire transfer is the right choice over an electronic check payment when sending a lot of money (i.e. > $25,000), as eCheck payments often have limits set by banks.

Difference Between eCheck Payments and Credit Card Payments

An eCheck payment is a direct payment – a transfer of funds between two bank accounts. To pay an electronic check, the customer just needs a checking account or a savings account – a credit card is not required.

A credit card payment requires a customer to present their credit card information. They can do this by presenting their physical card or by providing their card details remotely, such as through an online payment gateway or over the phone – also called a card-not-present transaction.

Further Reading: How to Accept Credit Cards in Your Small Business.

Is Accepting eCheck Payments the Right Move for My Business?

There are several advantages to accepting eCheck payments.

• Convenience. The whole eCheck payment process happens digitally, removing the need for paper checks  – and the potential for associated mistakes and risks.
• Cost effective. eCheck payments, especially for high ticket items, are cheaper to process than credit card payments. Encouraging your customers to switch to eChecks can offset some of your credit card processing fees and lead to savings.
• Recurring payments. It only requires a one-off authorization from the customer to set up recurring payments. This is ideal if your business works with memberships, subscriptions, or if you collect rent.
• Doesn’t require a credit card. eChecks provide a convenient way to pay for customers who don’t want to pay with a credit card.

While eChecks are great in many situations, they can – as mentioned earlier – take up to 7 days to enter your account. Also, they can be delayed or rejected – for example, if a mistake was made with the customer’s bank account information.

Keep these downsides in mind when deciding if eCheck payments are right for a certain type of transaction – or for your small business in general.

Is Accepting eCheck Payments Safe?

Electronic checks are much safer to process than paper checks, since there’s no physical check that can be lost or stolen.

eCheck payments are processed through the ACH network, which is managed by the government-regulated National Automated Clearing House Association (NACHA). NACHA requires strict security standards such as data encryption for payments to be approved and go through.

Additionally, we recommend any business that accepts electronic payments to become PCI compliant and to protect themselves against cyber threats such as phishing.

Accept eCheck Payments with Gravity

Electronic checks are convenient for customers who don’t want to pay by credit card. They are safer than paper checks and cheaper to process than wire transfers and credit cards.

At Gravity Payments, we provide a white glove setup that allows you to accept eCheck payments.

Learn more about our merchant services and don’t hesitate to contact us to discover new payment options for your small business.

Frequently Asked Questions

Small business owners often ask us questions about accepting eCheck payments. Here are some of the most common ones:

How long do eCheck payments take to process?

eCheck payments typically take roughly 7 days to process.

Do eCheck payments work on the weekend?

You can initiate an eCheck payment on the weekend, but the ACH network processes payments in batches and only operates on weekdays.

Can you cancel an eCheck payment?

You can void an electronic check before it settles. After settlement, you can’t cancel it anymore and you’ll have to issue a refund.

Further Reading: Void Transaction vs Refund: What’s the Difference?

Do I need special software or hardware to accept electronic checks?

This depends on several factors, such as whether you want to accept eChecks online or using a point of sale system. We can help you make this determination – feel free to contact us.