The Complete Guide to eCheck Payment Processing

The word “check” doesn’t seem to fit into today’s digital world filled with contactless payment methods, EMV chip technology, digital wallets, electronic payments, and cryptocurrencies.

Checks are an outdated payment acceptance method—I’m not going to dispute that. Some of you probably don’t even accept checks from customers, and if you do, I’m willing to bet that you only see a handful per month.

But echecks (short for electronic checks) are something that every business should consider adding to their arsenal payment processing methods. 

What is an eCheck?

Electronic checks provide a method to transfer funds between bank accounts without going through credit card networks. They have distinct advantages and differences from a traditional paper check.

Have you ever had a tax refund deposited directly into your bank account? What about a direct deposit paycheck? Both of these are examples of echecks.

In terms of using echecks for payment acceptance, customers must be willing to provide their bank account information. Some echecks might start out as a physical paper check, but that’s not a requirement.

Customers will be using the same information that can be found on a traditional check in order to initiate an echeck payment. 

How Do eChecks Work?

eChecks work similarly to traditional paper checks, except they’re processed significantly faster. Rather than manually filling out and signing a paper check, eCheck technology makes it possible for the payment to get processed electronically through four simple steps:

Step 1 – Authorization Request: The merchant must obtain authorization from the customer before an eCheck can be processed. Authorization requests can be handled through signed order forms, online payment forms, or over the phone on a recorded line.

Step 2 – Initialize Payment: Once the authorization has been obtained, the merchant can put the payment information through their processing software. For recurring payments, the same information can be used for all future payments, and the recurring schedule details will be provided (assuming the authorization request is allowed for recurring payments).

Step 3 – Payment Submitted: The merchant can submit the payment to begin the payment process through the ACH network.

Step 4 – Funds Deposited: Payments are automatically pulled from the customer’s bank account and deposited into the merchant’s bank account. After the transaction gets initiated, It can take three to five business days for the money to appear in the business bank account.

In short, eChecks electronically transfer money from a payer’s (customer) bank account to a payee’s (merchant) bank account. The payer enters their account information and routing number, which gets verified by the merchant’s bank to securely transfer the funds.

eChecks vs. ACH Transfers For Payment Processing

Both echecks and ACH transfers fall into the electronic payment category. In fact, many echecks in the United States pass through the Automated Clearing House (ACH) network, just like ACH transfers.

Due to the similarities between electronic check payments and ACH payments, the two terms are often used interchangeably. 

With that said, there are times when the two methods are very different. 

Back in 2004, the Federal government enacted the “Check 21 Act.” The new law allowed paper checks to be digitized and essentially turned into an echeck. This ultimately paved the way for remote check deposits and electronic check payment processing. If you’ve ever used your smartphone to deposit a check into your personal or business bank account by taking a picture, you’ve deposited an echeck. 

Check 21 checks don’t need to go through the Automated Clearing House network. In this sense, they are very different from an ACH transfer. 

Benefits of Using eChecks For Payment Processing

There are definitely plenty of advantages of accepting echecks compared to paper checks, credit cards, and other payment methods.

• Faster than paper checks (don’t have to be mailed)
• More reliable than paper checks (won’t get lost)
• More secure than paper checks
• Sync echecks with accounting software
• Quick access to status of check (accepted vs. declined/bounced)
• Cheaper processing fees compared to credit cards
• Customers have less time to dispute echeck charges
• It’s harder for customers to dispute echecks (compared to credit card chargebacks)
• Reduce the risk of fraud
• Offer more payment options to your customers
• Checking account information doesn’t expire (great for recurring payments)

As you can see, businesses across every industry could benefit from accepting echeck payments. At the very least, echecks will lower your total payment processing costs.

How to Accept eCheck Payments

There are lots of different ways to accept echecks. It all depends on your company’s business model.

For example, customers can still send you paper checks through the mail or pay using a physical check in-person. You just need to be set up for remote deposits with your bank. This will turn those paper checks into an echeck for deposits.

Instead of just using your mobile phone (like you would deposit a check in your personal bank account), some banks will provide you with check scanning equipment for remote deposits. This is definitely something to consider if you receive lots of physical checks.

In terms of bank routing, the money from echeck payments will come from an electronic funds transfer (EFT).

It’s common for merchants to accept echecks online. This is usually as simple as asking your existing payment processor what they offer for echeck acceptance. 

For those of you who don’t already have a merchant account, and don’t plan on accepting credit card payments, you can always use a dedicated echeck payment provider—like VeriCheck. These types of solutions can easily integrate with your website or app, so you can quickly process payments.

If you take orders over the phone, you can process echecks using a virtual terminal. You’ll just have to manually key-in the customer’s bank account information to process the echeck. Technically speaking, these are also considered online payments, since they pass through a payment gateway. 

eChecks Processing Costs

There is no universal fee for echeck processing. Similar to credit card acceptance, there are lots of factors and variables that determine the final cost associated with an echeck transaction.

With that said, echecks should be significantly cheaper than credit card processing. The costs will likely fall into the same price range as ACH payment acceptance. 

Depending on your bank and checking account, you might get charged a per-check fee for each remote deposit. Some banks might even charge you a monthly fee for using check-scanning hardware. 

If your current processor is facilitating your echeck transactions with a payment gateway, expect to pay some form of a percentage and/or flat fee for each transaction. Your processor will likely impose additional costs, like equipment fees, setup fees, application fees, check verification fees, high ticket surcharges, batch fees, ACH return fees, and more. 

In many cases, these fees are unnecessary and can be negotiated. You can contact our team of experts here at Merchant Cost Consulting to negotiate the processing fees on your behalf. 

While echecks are cheaper than credit card processing, they’re definitely not faster. Your funds may not be available in your account for 3-5+ business days with an ACH processor. Check 21 payments might appear in your account sooner.

Final Thoughts

Are echecks right for your business?

If you’re currently accepting paper checks, you can take advantage of the Check 21 Act to deposit those checks remotely, effectively turning them into an echeck. But beyond that, you can also accept echecks online and over the phone. 

By accepting echecks, it gives your customers another method to pay, which can’t hurt you. An electronic check can help you set up recurring payments as well. Plus, echecks help lower your overall processing rates, since the processing fees are so low.