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eChecks: What are they, and how do they work?

Chris Hooper
Written by
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Last editedMay 20222 min read

Along with other forms of online payment, many businesses accept eCheck payments from customers. Here’s a rundown of what an eCheck is and how it works.

What is an eCheck?

An eCheck is a straightforward online payment. In the United States, it works using the national automated clearing house (ACH network). To pay by eCheck, money is withdrawn from the payer’s checking account and deposited directly into the payee’s checking account. Businesses can sign up for an ACH merchant account to withdraw these electronic payments for goods and services.

To validate an eCheck payment, the customer must authorize the transaction by accepting a website’s terms and conditions or signing a contract.

How is an eCheck processed?

Like a paper check, an eCheck serves as a money transfer statement from one bank account to another. However, the process is much more efficient than with a paper check, as it’s all completed electronically. There are three primary steps to process an electronic check.

1. Authorization request

As mentioned above, the customer must authorize the payment for the transaction to go forward. This can be done by phone, with a signed order form, or online.

2. Payment information

Once the payment has been authorized by the customer, the business can set up a payment. Details are entered into a payment processing system, whether it’s a one-off payment or recurring plan.

3. Payment confirmation

After the payment information has been entered, the business can submit the details to start the transaction through the ACH system. At this point, the funds will be withdrawn from the customer’s checking account and deposited into the business’s account.

After the ACH transaction has begun, eCheck processing time typically takes between three and five business days for completion.

What can eCheck payments be used for?

The sky’s the limit when it comes to electronic checks. Whether your business provides products or services, they can be paid electronically with an eCheck.

This type of payment is a popular option for higher-cost items like mortgage payments, monthly rent, car loan repayments, and legal retainer fees. You can set up a recurring payment plan using an eCheck, making it a good option for subscription fees or membership plans. Rather than the hassle of submitting a paper check every month, subscribers can simply arrange an automatic deduction from their bank account.

Find out how to send an eCheck here.

What are the benefits of eChecks?

In comparison to paper checks, eChecks are processed faster since the transaction is completed online. They also cut down on paper waste. Businesses and customers receive an instant electronic confirmation of payment in an email or an easy-to-save PDF file.

From a financial perspective, eCheck processing fees are usually lower than credit card fees. It’s best to compare processing fees before choosing the best type of payment since this will vary depending on your location and business type.

What information is needed for eCheck processing?

To submit an electronic check, the payee must have a registered ACH merchant account set up. This enables the business to accept electronic payments and is simple to set up by providing the following information:

  • Federal Tax ID number

  • Business name and address

  • Transaction processing volumes

  • Years in business

  • Bank account details

The customer must submit all the same information that would be found on a paper check:

They must also authorize the payment, either online or over a recorded phone call.

Electronic checks are a convenient way to send and receive payments, combining the efficiency and security of electronic financial transactions with the familiarity of paper checks. It’s worth looking into this payment program to see if it could work for your business.

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Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

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