Checks may seem outdated in the age of credit and debit cards, NFC payment,  and online payment. They can take days to process and can be easily forged, lost, or stolen. If your customer doesn’t have enough funds in their account, you as a business owner could be hit with a hefty fee.   

Nonetheless, some customers still prefer to use checks. And for a merchant, there are situations in which processing a check may be more affordable than processing other forms of payment. Many of the risks of fraudulent or bounced checks, and many processing delays, can be overcome or lessened with the use of eCheck (electronic check) processing and verification services.

In this article, we will discuss how eChecks work, how businesses can benefit from using eChecks, and how merchants can implement eCheck processing. We will cover the pros of eChecks, as well as issues business owners need to be aware of.

How Does eCheck Payment Processing Work?

When you deposit a paper check, your bank sends it to a clearing unit such as the Federal Reserve bank. If your client or customer has the required funds in their checking account, the clearing unit transfers the check amount to your bank. The transfer process usually takes several business days and may be delayed by bank holidays, if the check is large, or if the checking account comes from a different state or country.

eChecks – or electronic checks – speed up this process considerably. Instead of transferring paper between banks, an eCheck uses electronic fund transfers (EFTs) to move money between banks via the Automated Clearing House (ACH). The check payer’s bank receives the request, verifies that funds are available, and then debits their customer’s account and credits the business account.  

To use an eCheck, a customer must provide their information, including bank account and routing numbers. The information can be provided over the phone, or through a secure form on the processor’s website. Besides this, customers paying with an eCheck are always required to authorize the payment. Payment authorization can be done through a signed contract, a recorded voice approval, or by a payment agreement on the merchant’s website. 

Once an eCheck is authorized, the merchant inputs the payment information into their payment provider’s online portal or software.  When the customer’s bank confirms funds are available, they are transferred into your business account.  

Who Should Accept eChecks?

EChecks are especially useful for businesses that accept large payments. Payment processing fees on credit card payments can be as high as 3.5%, and that doesn’t even include the other costs associated with your merchant services provider (MSP). The processing cost of an eCheck depends on the provider, but the average rate falls between $0.10 and $1.50. This is a great value if you are processing larger checks. Processing fees for a $10,000 eCheck payment will cost you less than a cup of coffee, while the processing fees for a $10,000 credit card payment could set you back over $350.

EChecks can also allow businesses to accept recurring payments. Because of this, eChecks are a great option for businesses that involve landlords, mortgage lenders, and auto finance companies. Likewise, eChecks are a good payment solution for subscription-based services. Gyms and fitness centers, item-of-the-month clubs, or mobile phone processors are just a few of the businesses that can benefit from autopay and autorenewal via eChecks. 

Pros and Cons of eCheck Payment Processing

Are eChecks a good fit for your business? As with any other form of payment, eChecks have advantages and disadvantages. Here are a few considerations that you should take into account before deciding if eCheck processing is right for you.

Pros of eCheck Payment Processing

  • Low Transaction Fees. While debit cards draw money directly from the customer’s bank account, they use the same processing networks as credit cards.  An eCheck bypasses those processing networks. Quickbooks estimates that eCheck payments can reduce processing fees by as much as 60%.
  • More Secure Than Paper Checks. EChecks aren’t just cheaper and more convenient for businesses, but they are also safer for customers. A paper check contains the account holder’s name, financial institution, routing number, and bank account number. It then passes through several hands while being processed, raising the risk of identity theft. On the other hand, eChecks use electronic encryption to prevent data theft.
  • Can Reduce Instances of Declined Cards for Recurring Payments. Credit and debit cards expire frequently and are often lost or stolen.  Checking account information is generally more stable.  According to GoCardless, failure rates on recurring card payments vary but are generally over five percent, while the failure rate on ACH debits like eChecks is typically under one percent.
  • Collect Payments from People Without Credit/Debit Cards. Even today, there are some people that choose not to use a debit or credit card. EChecks allow you to collect payments from those who forgo card payments.
  • Convenient for B2B Payments. While personal checks are becoming increasingly rare, business-to-business transactions frequently involve paper checks. Using eChecks can speed processing times. Because the data is verified electronically, it can be validated more quickly than a paper check.  

Cons of eCheck Payment Processing

  • Slower Than Other Forms of Payment. Getting the customer authorization for an eCheck can be more complicated and labor-intensive than simply swiping a card. And once you deposit an eCheck, you may have a long wait before the funds arrive in your account. Funds from a debit card or online payment services like Paypal and Venmo are usually available within a few minutes, whereas an eCheck generally takes 3-5 business days to clear.
  • No Weekend or Holiday Processing. Because eChecks are handled by financial institutions, they are not processed on weekends or holidays. If you deposit an eCheck on Monday, you may see funds by Thursday. If you deposit on the Friday before a bank holiday you may wait over a week before the funds become available. 
  • EChecks Can Bounce. There are a number of reasons why your customer’s eCheck might be declined. They may have insufficient funds, or there could be a mistake on the part of the customer’s bank or a gateway payment processor.  Customers may provide an inaccurate bank or routing number, or employees may make typographical errors.  Straightening out a bounced eChecks can be time-consuming. And, bounced checks can result in chargeback fees, or non-payment for your goods and services.

You can mitigate the risk of a bounced check by taking advantage of a check verification service. Such service runs your customer’s personal information against a database of bounced checks. This verifies that the customer has an active bank account and accurate routing numbers. Enrolling in a check verification service may help reduce losses, but it will come at an additional cost.

  • May Not Work for “High Risk” Clients. Some businesses are more prone to chargebacks and payment complications than others. According to Securion Pay, those businesses may include everything from adult services providers and weapons sellers to antique dealers and travel agencies. If you are able to find an eCheck processor at all, you will pay a premium for their services.    

Cost of eCheck Payment Processing

So what can you expect to pay for eCheck processing? Different eCheck processing companies have different terms. These are three of the most common eCheck payment processing fee structures :

  • Flat fee: You will pay a flat amount for eCheck processing, regardless of the size of the eCheck. Flat fee eCheck fees usually range from $0.30 to $2.50 per transaction. 
  • Percentage fee: Also known as a variable fee structure. A percentage fee structure charges a specified percentage of the total amount of the eCheck. This amount can range anywhere from 0.5% to 3%. 
  • Flat fee + percentage fee structure: You will be charged a flat fee per eCheck processed, plus a percentage of the total amount of the check. For example, you could be a flat charged $2, plus an additional 0.5% of the total check amount. 

Be sure to consider the fee structure when deciding which eCheck processor to go with. If you’re processing eChecks of larger dollar amounts, you’ll probably save more money by going with a flat-fee structure. 

Along with the per-transaction fees, some other fees may apply to the cost of eCheck payment processing:

  • Application Fees: Some processors charge an application fee for the required due diligence and credit checks on your company. In exchange, they may help you set up your system to make sure it is properly integrated with their back-end hardware.
  • ACH Return and Chargeback Fees: If your client’s check bounces or if your client files a chargeback request with his bank, you could be charged a penalty. If this happens too often, you may find your fees and percentage rate increased. Or you may be in danger of your processor dropping you altogether.
  • High-Risk Fees: If you are a high-risk client, you can expect your payments for eCheck processing to be comparable to the price of card transactions. At Performance Card Services – a high-risk card and eCheck processor – rates and fees for eCheck processing usually range from 1.99%  to 4.5%, plus a $0.25 to $0.49 transaction fee.
  • Monthly Minimum Fees: Your eCheck processor may have a monthly minimum for fees. You may be required to pay these minimums regardless of how many checks you actually process.
  • Rental Fees: You may be charged a monthly rental fee for Point of Sale (POS) equipment like check scanners and PIN pads.
  • Termination Fees: If your business closes or you decide you no longer need eCheck processing services you may be on the hook for an early termination fee. Be sure that you read your contract carefully and avoid these unnecessary fees whenever possible.
  • Verification Fees: Verification transactions usually cost around $0.15  to $0.35 per item. Check guarantee service charges start at around 1.5% of total eCheck revenue. While verification services are usually optional, they may be required if you are a high-risk merchant or if you have too many returned checks or chargebacks.

Want to know more about payment processing? Read Payment Processing: Everything You Need to Know.

Final Word

The more payment options you have, the more potential customers you can reach. eChecks may help you expand your customer base, and can save you money on fees collected from recurring payments.

Although eChecks may not be suitable for every merchant, they are definitely worth considering for businesses that regularly collect high-dollar-amount payments. 

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