How Do eChecks Work?

As with many other countries, the use of paper cheques is in decline within Australia. Instead, electronic payments like an eCheck offer the same function in a more convenient format. Keep reading to learn more about how online bank payments work, as well as how to accept eChecks from customers.

What is an eCheck?

More commonly written out as ‘eCheque’ in Australia, an eCheck describes a type of electronic bank payment. As with paper cheques, Direct Debit and wire transfers, it enables the transfer of funds from one bank account to another. The term ‘eCheck’ is used primarily in the USA, where eChecks are transferred using the automated Direct Debit clearing house or ACH network.

In Australia, the bulk electronic clearing system, or BECS, is used to enable these bank-to-bank payments. As with writing a paper cheque, the payer authorizes a specific amount to be taken from their bank account. It is then deposited directly into the payee’s bank account.

The primary difference between a paper cheque and eCheck is the processing involved. Paper cheques take longer to process due to the manual effort involved with depositing them at a bank. With an eCheck, the full process is streamlined and processed digitally.

How does eCheck processing work?

When you write out a paper cheque, you sign the paper slip to authorise payment. How does this authorisation work when it comes to eCheck processing? A business must obtain key details from the payer for electronic bank transfers, including the relevant bank account numbers. Here are the steps involved to accept eChecks:

1. The merchant, or originator, starts the process by gathering relevant details from the customer either in person, over the phone, or with an online form. This step typically takes place with the assistance of a third-party payment processor like GoCardless.

2. The authorised details are entered into the online payment processing software, whether it’s to set up a recurring or one-off payment. It’s then submitted to start the ACH or BECS transfer process.

3. The payment will be automatically processed in batches using BECS clearance. Funds are withdrawn from the customer’s bank account and routed to the business’s bank account. The full process can take three to five business days for processing.

If you want to accept eChecks, you’ll need a merchant account and payment processor to facilitate this whole process.

BECS vs EFT vs eCheck

The terminology surrounding electronic payments can be confusing, particularly as the term ‘eCheck’ isn’t widely used in Australia. You might see references to EFT, or electronic funds transfer, as well as BECS Direct Debit, e-wallet, and wire transfers.

What’s important to recognise is that EFT is an umbrella term covering multiple types of electronic payments, including both BECS transfers and eChecks. There is little difference between eChecks and BECS Direct Debit, as both provide an electronic way to move money from one bank account to another. To sum it up, an eCheck is a type of electronic funds transfer (EFT) that uses the bulk electronic clearing system (BECS) for processing.

Making business to business payments

As you can see, an eCheck is simply an electronic payment enabling a transfer of funds between two bank accounts. This is just as applicable to business to business payments as it is to B2C transactions. There are numerous benefits to using eCheck or BECS Direct Debit transfers rather than card payments, including lower costs.

GoCardless enables online bank-to-bank payments, including the Australian equivalent to eChecks via the BECS clearance system. Whether making recurring or one-off payments, you can manage automated Direct Debit payments from a single online dashboard.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.