What is an eCheck? Understanding how electronic checks work and how to accept payments

Looking to expand the payment options of your small business? Digital payments like eChecks can make receiving funds from your customer faster and more efficient than using physical checks.

But just what is an eCheck exactly, and why should you consider using it in your online banking routine? Read our guide to understand how electronic check payments work.

Jump to:

• What's the difference between an eCheck and other digital payment methods? 
• How does an eCheck work? 
• How long does an eCheck take to process?
• How to accept eCheck payments 
• Advantages of electronic checks 
• Disadvantages of digital checks 
• Common eCheck challenges and how to avoid them 
• Choose the best payment setup for your business 
• eCheck FAQ

What's the difference between an eCheck and other digital payment methods?

Electronic Funds Transfer (EFT) is a broad term that covers any type of electronic payment method. Wire transfers, ACH transfers, and eChecks are all examples of EFTs, but each has different features and benefits. Let’s take a look at how eChecks differ from these payment methods. 

eChecks vs. ACH transfers

Automated Clearing House (ACH) is a network that processes batches of electronic transactions. ACH transfers can be used for recurring payments, such as payroll or bills, or for one-time payments, such as online shopping or peer-to-peer transfers. ACH transfers typically take one to three business days to process, but they also tend to be cheaper and more convenient. 

eChecks are a type of ACH transfer that mimics the process of writing a paper check. eChecks require the payer to provide their bank account number and routing number, and the payee must authorize the payment. They’re safer than paper checks, as they reduce the risk of fraud and bounced checks. eChecks are also faster and cheaper than paper checks, as they eliminate the need for printing and mailing.

eChecks vs. Wire Transfers

Wire transfers send money directly from one bank to another, usually within the same day, making them much faster than eChecks. However, wire transfers cost more and are commonly used for time-sensitive or large payments, like buying a home. On the other hand, eChecks are slower and processed through the ACH system, but they’re cheaper and safer for everyday transactions.

How does an eCheck work?

eChecks offer a convenient way for merchants and customers, employers and employees, and small businesses to exchange money electronically. How this works:

eCheck transactions rely on the Automated Clearing House (ACH) system, which facilitates batches of electronic funds transfers (EFTs). ACH allows banks to exchange transaction details, communicating what to debit, what to credit, and to whom—all electronically.

Let’s take a closer look at how eCheck processing plays out step-by-step.

1. Customers authorize transactions

The customer authorizes a predetermined amount to be withdrawn from their account. You can’t receive funds until the customer approves the transaction. Ensure that your banking details are correct to avoid delaying the processing.

2. Funds travel via the ACH network

The funds are transferred electronically via the ACH network. Keep in mind that an ACH transfer is slower than a wire transfer. ACH conducts these transfers in batches rather than one by one, so it can take a few days to see money move. 

3. Funds move to the seller’s account

The amount is transferred from the payer’s financial institution to the seller’s financial institution. Processing times may vary, but eChecks typically take between 24 and 48 hours to verify and three to six business days for funds to be withdrawn and deposited into the respective business checking account. 

4. Seller can withdraw funds from their account

The money is withdrawn from the payer’s bank account and deposited into the payee’s bank account. Your small business bank account should now reflect the funds, and you can withdraw them.

How long does an eCheck take to process?

On average, an eCheck takes three to six business days to process through the ACH network. However, there are a few factors that can affect processing times. For example, some banks may have longer internal review times for eCheck transactions, which can extend the processing window. Also, if you’re sending an eCheck payment to your business account for the first time, processing may take longer due to additional security checks or account verifications.

How to accept eCheck payments

To accept eCheck payments as a business, you need a payment processor that supports this method and a secure online form that collects the customer's bank information. If you decide to use eChecks as a payment option, follow these steps:

1. Set up an ACH merchant account 

Only work with reputable ACH transaction providers that encrypt customer data. For security reasons, Keep the number of employees who can access this financial data to a minimum if possible.

2. Get customer authorization 

You can get customer authorization via a digital signature or recorded phone call. You’ll need your customer to approve this transaction before you can access the funds. Your customer will need to provide their checking account number, bank routing number, and their payment amount.

3. Enter payment details

Before you begin accepting eCheck payments, you’ll need to gather and submit the following information to the ACH merchant:

• Federal Tax ID number
• Business name and address
• Transaction processing volumes
• Years in business
• Bank account details
• Customer’s checking account number
• Customer’s bank routing number
• Customer’s payment amount

As with any form of payment, merchants and customers are encouraged to protect their payment information. Notify your ACH provider if you need to change this information or suspect any fraudulent activity.

4. Run eCheck payment processing with the support of your ACH provider

Once you’ve set up your account, received customer authorization, and entered your payment details, you’re ready to process the payment and access your funds. Keep in mind that the process can take a few days to complete.

Since eChecks are a form of EFT that enables you to easily collect recurring payments, process payroll, and initiate online payments, prepare to enjoy a more streamlined payment process. 

Advantages of electronic checks 

eCheck transactions can be useful for recurring payments and direct deposit, but several other perks may benefit your business. 

Ease of use 

If your business frequently processes paper checks or has recurring customer transactions, eChecks can save you time. Your customers will benefit from having easier ways to pay, and you’ll reduce the risks of human error during payment processing. eChecks also provide a digital transaction log that feeds data to your accounting system, making reconciliation simple. 

Reliability

eChecks are generally a reliable way of transferring funds. They use the ACH network to process transactions. The ACH system is governed by the Federal Reserve as well as the National Automated Clearing House Association, which upholds strict regulatory guidelines for participating banks and providers.

eChecks pass through far fewer hands than paper checks, which speeds up the transaction process and mitigates fraud risk (more on that in a moment). If your business collects recurring customer payments, eChecks can be a more consistent payment method than credit cards. 

Cost-effectiveness

Another big benefit eChecks offer merchants and other small businesses is their cost-effectiveness. Processing fees for eChecks are typically more affordable than other payment methods, like credit cards, which can range between 1.5% to 3.5% of each transaction. All in all, accepting eChecks can reduce payment processing costs by up to 60%.

Security

eChecks are generally considered a safe, reliable payment option for both merchants and customers. On the customer’s side, eChecks leverage data encryption to protect sensitive details like bank routing information and account numbers. In addition, eChecks exchange fewer hands than sending or cashing a check.

As for the merchant, data encryption works in your favor too. To mitigate the risk of receiving a bad check, it’s a good idea to research payment processors and ensure you’re only working with reputable providers.

Disadvantages of digital checks

Like any payment option, there are both advantages and disadvantages associated with eChecks. Now that you’ve had a chance to look through the positive aspects, let’s review some of the potential drawbacks.

Slower processing time 

As we covered earlier in this post, it usually takes between a few business days for eChecks to process in full. Other payment types, like debit and credit card payments, are typically posted much faster, between one and three days. For some businesses, payment timelines are more flexible, while others may rely on more efficiency when it comes to collection. 

Unfamiliar to some customers

Most customers are familiar with debit and credit card transactions that use the ACH network, but fewer are familiar with eChecks. Depending on your customer base, it may be challenging to transition to eChecks, but more options also expand your possibilities for doing business, which is never a bad thing.

Common eCheck challenges and how to avoid them

If your business is thinking about accepting eChecks, there are a few bumps you might hit along the way. Let’s look at some of the most common challenges and how you can address them.

Insufficient funds

If a customer doesn’t have enough money in their account, the eCheck can bounce. This means you don’t get paid, and it could also lead to extra fees. To avoid this problem, confirm the customer’s bank details before processing the payment. You can even use pre-authorization to ensure they have the funds before you move forward.

Incorrect banking information

Entering the wrong account or routing number can lead to failed payments and cause frustrating delays for both you and your customers. Before submitting an eCheck, have your customers double-check these details. Offering a simple step in your payment form where customers can verify their information helps catch errors before they cause problems.

Fraud risk

Although eChecks are generally more secure than paper checks, there’s still a risk of fraud because scams like account hijacking or using stolen bank details can still happen. To mitigate this risk, make sure the payer or payee is legitimate, watch out for any unsolicited payments, and always use trusted payment platforms with strong security features.

Returns and chargebacks

Like credit card payments, eCheck transactions can be disputed, resulting in chargebacks or returns. Be sure to keep thorough records of your transactions, and let your customers know your refund and dispute policies upfront. If you use Quickbooks, we offer chargeback protection — up to $10,000 per chargeback and up to $25,000 per year.

Choose the best payment setup for your business

So, what is an eCheck? It’s a simple way for your small business to accept electronic payments from customers. Although it takes a few days to clear, it’s a paperless transaction that can potentially improve the efficiency of your payment process.

If streamlining payments is a goal for your small business, consider upgrading to automated banking systems that keep your financial information at your fingertips. Find the right payment setup for your small business. One option is QuickBooks, where you can automate how you manage your business money– all in one place.

QuickBooks reduces manual QuickBooks Payments matching by 60%: Calculation based on a comparison of total monthly QuickBooks Payments transactions with those that were automatically categorized from August 2022 through January 2023.