All You Need to Know About Electronic Checks

What is an echeck?

As India is paving its way in technology, there are various works that can be done digitally now. Echecks are the digital version of the physical paper check. It is also known as electronic check, online check, or internet check. Echecks are transmitted electronically. This makes transaction processing quicker, safer, and easier. It uses the same information as is needed in a traditional paper check.

How do echecks work?

Echeck payments are facilitated by ACH (Automated Clearing House) network, an electronic network used by U.S. financial institutions. With an ACH merchant account, an entity can withdraw payments for goods or services directly from their customers' bank account. Customers have to authorise such payments, either by a signed contract, acceptance of the website's 'Terms and Conditions, or a recorded voice conversation.

Following are the steps involved in an echeck:

1. Customer authorisation: The business entity needs to obtain authorisation from the customer before initiating any transaction. It can be done via an online payment form, signed order form, or recorded call conversation.

2. Payment Set-up: After authorisation, the business entity enters the payment information into the online payment processing software. If the payment is recurring in nature, this information also includes the details of the recurring schedule. Once information is entered correctly into the software, it is saved and submitted to start the ACH transaction process.

3. An ACH operator: The ACH operator sorts the fund requests and settles the funds into the business bank.

4. Depositing of funds: The customer's bank receives the request, verifies that the funds are available, debits the customer's account, and credits the business entity's account. The payment software also sends a payment receipt to the customer.

What is the time limit for echecks getting processed?

The time needed to process the echecks slightly varies between payment service providers.  Time is saved as the basic details of a bank account are already stored by the software. But in a manual check, one needs to fill these in every check. The processing time is almost the same for both online and manual. It generally takes 24 to 48 hours to verify the funds in a customer's account. The echeck is then processed between 3 to 6 working days, and the funds are transferred from a customer's account to a merchant's account.

What kind of security is needed to use echecks?

Echecks are considered more secure than paper checks. Below are some major security components for echeck transactions :

• Customer authentication: In this process, the payment service provider verifies the person submitting the account information. Authentication ensures that ambiguous and fraudulent details are not submitted to the business entity.
• Data encryption: This is the process of 'masking' confidential and sensitive data. All ACH transactions require data encryption, including echecks for transactions that happen over unsecured electronic networks.
• Cryptography: Public-key cryptography is a part of the data encryption process and is used to cypher the data to protect it in transit.
• Digital Signature Certificate: The echecks are signed through a digital signature certificate with timestamps to ensure that echeck transactions are not fraudulently duplicated. These certificates are issued by registered authorities to protect the information, enable safe communication, and encrypt transactions.
• Fraud detection: This is a strategy where duplicate echeck transactions and suspicious activities are monitored to prevent fraud.

How can an echeck be cancelled?

While doing business, the need to cancel a transaction may arise at some point in time. Whether the echeck payment can be cancelled or not depends on the stage of the transaction. If the payment is already credited into the entity's account, it can't be cancelled. For returning the amount credited, a refund process has to be initiated. If the payment is still pending, the payment processor must be contacted to know the best way to proceed. The exact process of cancelling the echecks varies between the payment software used by the business entity.

What if an echeck bounces?

In an online mode of check payment, the customer generally has an idea of when the amount will be debited. Funds are mostly verified within 24 to 48 hours after the authorisation of payment by the customer. If a customer's account does not have sufficient funds, the echeck will 'bounce' like a traditional paper check. The customer is required to contact the payment processor to see if any echeck has bounced or the details of its fees, any penalties for late payment, etc. If any payment is not processed due to a check bouncing, the customer needs to set up an alternative mode to settle the transaction.

What are the benefits and drawbacks of using echecks in business?

Echeck payments can be good for businesses, but it is especially well suited to businesses in which the payment nature is recurring, such as a subscription-based business, an online business, or businesses that accept large payments. Below, a few other benefits of using echecks are mentioned:

• Reliable: Echecks use the ACH network to process the transaction. The ACH network is governed by the Federal Reserve and the National Automated Clearing House Association. They uphold regulatory guidelines for participating banks and providers. Because of this, echecks are a reliable way of transferring money.
• Time and Cost Saving: As echecks make direct debits from the bank, the time needed to initiate the transaction is reduced. While on the other hand, the processing fees for echeck payments are much affordable, which is beneficial in terms of cost reduction.
• Secured payments: The data used in an echeck transaction is encrypted to protect confidential details like banking information, customer details, etc. The risk is low in the online processing of checks. Therefore, echecks are considered a safer way to transfer funds efficiently.

Despite the benefits of echecks, there are also a few drawbacks which are listed below :

• Resistance by some customers: Like many people who cannot use the latest technological devices for various reasons, some customers resist the shift to online transfers through echeck payments.
• Slower Processing time: As stated earlier, the time needed to process an echeck is 3 to 6 working days, the time needed for debit and credit card payments is 1 to 3 working days, which is comparatively less. Which option can be adapted for receiving funds depends on the payment terms of the businesses.

Conclusion

It is very easy to start with the echeck payment option for the business entity. One needs to find a payment service provider through proper research and initiate the procedure to open a merchant account by providing some details of the business, its customers, and other details as required. Once the service provider reviews the details, the account is opened, and the entity can start transacting with echecks. By accepting echecks payment options, a business naturally expands its revenue potential. You may also visit the OKCredit app to know about these.

Also read:

1) How To Start An Electronics Store In India?
2) How to Become an Electronics Wholesale Dealer?
3) How to start an electronics export business in India?
4) Which city has the best electronics market in India?
5) OkCredit: Simple, Paperless & Secure solution for businesses

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FAQs

Q. What is the difference between EFT and ACH?

Ans. EFT (Electronic Fund Transfer) is an overarching term that includes many types of fund transfers, including direct deposits, ACH transfers, echecks, Paypal payments, e-wallets, wire transfers, etc. ACH (Automated Clearing House) is a network used in the United States which provides an infrastructure for payment processing companies as discussed earlier. In simple terms, echecks are a type of Electronic Fund Transfer (EFT) that uses the ACH network to process the fund transfer.

Q. Do echecks process on weekends?

Ans. As the echeck payment system is dependent on banks and financial institutions, the transaction process is completed in business working days. So, echecks are not processed on weekends.

Q. What is the difference between echecks and card payments?

Ans. The working process of echecks is different from card payments. The main difference between them is that echecks transfer the funds through the ACH network, because of which the charges of processing fees are low compared to card payment networks.

Q. Which type of payments can be made through echecks?

Ans. Since the processing fees paid by merchants for echecks are less as compared to card payment options, it's common to accept echeck payments for high-cost items such as loan instalments, rent, mortgage, or car payments, and high-cost monthly fees such as membership or subscription fees.