Has someone asked you to make an eCheck payment? Are you looking to collect eCheck payments from customers? Are you all around confused by eChecks? Don't worry; you're not alone.
We compiled a list of the 7 most common eCheck (electronic check) questions. If you have a question you'd like answered, please submit it in the comments section at the bottom of this post.
Essentially, an eCheck, or electronic check, is a form of online payment where money is electronically withdrawn from the payer's checking account, transferred over the ACH network, and deposited into the payee's checking account. With an ACH merchant account, a business can withdraw payments for a good or service directly from their customer's bank account. The payment must be authorized by the customer, either by signed contract, acceptance of a website's "Terms and Conditions" or a recorded voice conversation.
Electronic check processing is somewhat similar to paper check processing, only faster. Instead of a customer manually filling out a paper check and sending it to the business they need to pay, today's technology allows the process to happen electronically, saving both time as well as paper waste.
EFT stands for "Electronic Funds Transfer."
This all-encompassing term includes many types of financial transfers:
ACH stands for "Automated Clearing House."
This is the electronic network used by financial institutions in the United States that provides the infrastructure used by payment processing companies.
The best way to explain the similarities and differences of ACH, EFT and eCheck is that an eCheck is a type of electronic funds transfer (EFT) that uses the Automated Clearing House (ACH) network to process the payment. The money is electronically withdrawn from the payer's account, sent via the ACH network to the payee's banking institution, and then electronically deposited into the payee's account – similar to a paper check, just electronically.
Since merchants pay a smaller fee to process eCheck payments than they do to process credit card payments, it's popular to accept eCheck payments for high-cost items such as rent, mortgage or car payments, and high-cost monthly fees such as legal retainers and fitness memberships.
eChecks are actually one of the most popular types of recurring payment. You might have also heard of the term "recurring ACH payment" which is the same as a recurring eCheck payment. Property managers will often ask tenants to fill out a recurring eCheck rent payment form, giving them the ability to automatically deduct rent from their tenant's checking account on a certain day each month.
The eCheck clearing process varies slightly between providers. Generally, funds are verified within 24 to 48 hours of the transaction being initiated. Should the payer have the funds available in their checking/bank account, the transaction is cleared within 3 to 5 business days and the funds are moved from the payer's account to the payee's account.
In order to send an electronic payment, the person to whom you are sending the payment needs to have an ACH merchant account. This merchant account gives them the ability to use the ACH network to accept payments via electronic funds transfer.
1. The payee sends you an online payment form where you fill in your checking account number and routing number, as well as the amount of payment. By clicking "Submit" you are authorizing the payee to withdraw the payment amount from your checking account.
2. By making a call on a recorded phone line, the payee can ask for your checking account and routing numbers. They input these numbers, as well as the payment amount, into the online payment terminal. Upon clicking "Process" the payment will be deducted from the payer's bank account and deposited into the payee's bank account.
The providers of eCheck merchant accounts charge different fees to process an eCheck. Some eCheck processing companies charge a higher per-transaction fee and a lower monthly fee, while others charge the opposite. The average fee ranges from $0.30 to $1.50 per eCheck transaction.
Signing up for an eCheck or ACH merchant account is similar to getting a credit card merchant account. Once a business has found a best-fit merchant account provider, the business will need to provide information including:
This will be entered into an application for approval by the payment processor or merchant account provider. Approval can happen in a matter of days.
If you'd like to learn more about merchant accounts, use our handy, alphabetized guide.