Electronic Check Basics

What you need to know about eChecks or electronic checks

What is an electronic check? 


It’s simply an electronic version of a paper check. When you convert a traditional check into an electronic payment, you can process it through the Automated Clearing House (ACH) Network to save time and money—and because electronic checks have more security features than a paper check, they better protect your business and customers. Another way to think of an electronic check is when a customer pays by entering in their bank account information online and electronically sending the money. Electronic checks are becoming increasingly popular because they are so fast, efficient and secure.


Electronic checks are sometimes called eChecks, electronic check conversions, or Back Office Conversions (BOCs). Read more on what you need to know as you consider using eChecks in your business.

How electronic checks work  


The process is simple. First, you run a customer’s paper check through an electronic scanner system supplied by your merchant service provider. This virtual terminal captures the customer's banking information and the payment amount. The information is then transferred electronically over the Federal Reserve Bank's ACH Network, which takes the funds from your customer's account and deposits them into yours.


After payment approval, the virtual terminal will print a receipt for the customer to sign and keep. Your employee should then void the paper check and return it to the customer. You’ll be able to view and report on your merchant transactions online, although features may vary depending on your merchant service provider or your payment processing solution provider.

How does the ACH Network work with eChecks?


The ACH Network is a funds distribution system that moves funds electronically from one entity to another. It’s a highly reliable and efficient nationwide electronic network governed by the rules of the National Automated Clearing House Association (NACHA) and the Federal Reserve (Fed).


Given its ability to electronically transfer money directly to and from bank accounts, ACH is a faster payment method than traditional paper checks. The ACH payment process is close to the paper check process, only faster. Clients give their bank routing or checking account number and after verification, the payment is transferred quite immediately electronically through the ACH system. Besides checks, the ACH Network also handles debit card transactions, direct deposits of payroll, Social Security, and other government benefits, direct debit payments and business-to-business payments

Reaping the benefits 
of eChecks 


Converting your customers’ paper checks into electronic checks helps save time and reduces hassle for your staff because you can submit payments electronically instead of making trips to the bank. However, time saving and hassle reduction are not the only benefits. Read on for more:


1. Reduce processing costs by up to 60%. eChecks require less manpower to process and don’t come with any deposit or transaction fees. As a result, processing an eCheck is generally much cheaper than processing a paper check or credit card transaction.


2. Receive funds sooner. Businesses that use electronic check conversion have their funds deposited almost twice as fast as those using traditional check processing. Billing companies often receive payments within one day.


3. Increase sales. If your business doesn’t accept paper checks, offering eChecks expands your customers’ options and can increase sales. If you’re converting from paper checks to eChecks, you can start accepting international and out-of-state checks while using account validation and customer authentication processes to protect your business from fraud.    


4. Work smarter and greener. Electronic check conversion is easy to set up. It relies on the trusted ACH Network. And eChecks help reduce the more than 67.4 million gallons of fuel used and 3.6 million tons of greenhouse gas emissions created by transporting paper checks.


5. Decrease errors and fraud. eChecks reduce the potential for errors and fraud because fewer people handle them. Merchant service providers also maintain, monitor, and check files against negative account databases that store information about individuals or companies that have records of fraud.

Protecting your business—and your customers


Electronic check conversion is one of the most secure payment methods in the electronic payment processing industry because it uses the latest information protection features:


1. Authentication. Merchants must verify that the person providing the checking account information has the authority to use that account. Authentication services and products available to merchants include digital signatures and public key cryptography.


Also known as digital certificates, digital signatures encrypt data in a way that gives the receiver a more reliable indication that the information was actually sent by the sender. They’re used on the Internet to confirm the identity of a customer, much as a handwritten signature would. Because digital signatures are difficult to tamper with or imitate and are easily transportable, they’re a good way to verify identity. Digital signatures are often used to implement electronic signatures, which include any electronic data that carries the intent of a signature.


Public key cryptography is a security method that uses keys to encrypt and decrypt a sent message. With electronic check conversion, the private key is a secret mathematical calculation used to create the digital signature on the echeck, and the public key is the key given to anyone who needs to verify that the sender signed the echeck and that the electronic transfer has not been tampered with.


2. Duplicate detection. Financial institutions use software and operational controls to prevent and detect duplication of the scanned electronic representations of customer checks.


3. Encryption. The ACH Network automatically encrypts messages using 128-bit encryption and a secure sockets layer (SSL).

How to get started with electronic checks


Here’s how to implement electronic check conversion as quickly and easily as possible:


1. Choose a well-established processing company. Good pricing is important, but working with a reliable processor is essential.


2. Notify your customers that your business will begin using electronic check conversion. Federal laws require you to post a notification about this change and give your customers a takeaway copy. You must also provide customers with a phone number to request more information.


3. Look for a processor that makes it easy to align your current business processes with your new electronic processing system, export customer data, and integrate your new system with your business management software.


4. QuickBooks Payments offers a complete payment processing solution. Businesses can take payments from their customers in many ways- from ACH bank payments, electronic checks to credit cards including Visa, MasterCard, Discover and American Express. In addition to offering many ways to get paid, QuickBooks Payments also enables businesses to email invoices to their customers with a Pay Now button. Our data shows us that businesses using QuickBooks Payments are getting paid twice as fast due to the e-invoicing feature. Learn more here.