The Small Business Guide to eCheck Payment Processing

The Small Business Guide to eCheck Payment Processing

As small- and medium-sized businesses embrace new customer payment options, one tried-and-true payment type is holding its own. In the non-card payment arena, eChecks—i.e., electronic check processing—has become a very popular digital payment method across the United States. View this complete guide to eCheck payment processing, and decide whether it’s a good payment choice for your business.

Snapshot of Echeck Payment Processing

An eCheck is essentially a digital representation of the traditional paper check. It is a type of electronic funds transfer (EFT) that doesn’t involve a credit card issuer.

Let’s say a customer makes a purchase, and requests to pay with an eCheck. With their authorization, you’ll direct debit their checking account for the purchase amount rather than using a card. Electronic check payments provide the payer’s bank routing number and checking account number so funds can be rapidly transferred between banks. Most well-known payment gateways offer an eCheck payment option.

Your customer drives the eCheck transaction, providing their bank account number and routing number instead of using a credit card. Just like ACH transfers, the transaction automatically travels over the United States-based Automated Clearing House Network (or ACH Network). Within a few days, the transaction funds appear in your business’ bank account, much like credit card proceeds.

How Do e-checks Work?

Processing an eCheck involves four well-defined steps. Although it seems a bit laborious, the process should take only a few minutes.

1)  Request transaction authorization: The customer must authorize the business to conduct the transaction. If the customer is present, they’ll sign an order form. Alternatively, the customer can authorize the transaction via a phone conversation, or complete an online payment form posted on an eCommerce merchant’s website.

2)  Set up the payment: After receiving the customer’s authorization, the merchant uses online payment processing software to enter the customer’s payment information. If this will be a recurring payment, the merchant will also enter those applicable details.

3)  Finalize the transaction: After the merchant confirms the payment information, they’ll click “Save” or “Submit” to begin the eCheck transaction process.

4) Wait for the funds deposit: Like other ACH transactions, the payment is deducted from the customer’s bank account, and the online software electronically sends a receipt to the customer. The funds are deposited in the business’ bank account. Typically, the eCheck payment processing time is at least four days.

How Much Are the Echeck Processing Fees?

eCheck merchant account providers vary widely in their fee structures. Some eCheck providers assess a higher transaction fee while charging a reduced monthly service fee. Other providers use the exact opposite approach. On average, an eCheck fee varies from $0.30 to $1.50 for a typical eCheck transaction.

Are e-Checks a Secure Form of Payment?

Here’s some good news: eChecks and other electronic payment/ACH payment types are regarded as more secure than traditional paper checks. In other words, using eChecks means ambitious identity thieves won’t have the opportunity to pilfer paper documents from your business’ mailbox.

In addition, eCheck payment processing has several embedded authentication steps that act as added layers of security. These extra precautions benefit both parties in an eCheck transaction.

eCheck Payment Processing: Pros and Cons

Here are the pros and cons of eCheck payment processing. Armed with this knowledge, business owners can decide whether it’s the right payment option for their business.

Pros of eCheck Payment Processing

Electronic checks, or eChecks, are a viable form of payment for all checking account customers. In addition, eCheck payment processing offers several additional benefits.

Low Rates

Businesses on a budget may appreciate eChecks’ low processing costs. Companies that do bulk payment processing will also enjoy the savings.

They Support Mail and Phone Orders

Computer-based virtual terminals enable easy processing of mail and phone orders. Here, the eCheck payment method captures an often-overlooked market segment: customers who prefer to pay via traditional methods.

Good for Recurring Transactions

Recurring transactions provide a business with multiple payments over months or years. Companies often use eChecks for these cost-effective revenue streams and steady cash flow.

Reduced Chargebacks

Even though customers can file chargebacks on eChecks, the process is much harder and stricter compared to credit card transactions. Since there’s a long-standing legal framework around checks, customers must file chargebacks through their bank which is likely to be a complicated, time-consuming process. Also, customers have just 60 days to initiate the process (versus 180 days for card-related disputes) which dramatically reduces the chances of chargebacks.

Cons of eCheck Payment Processing

eCheck payment processing has three significant disadvantages. 

The Process of Accepting eChecks Can Be Cumbersome

Let’s say you own a retail store, and a customer wants to pay for their purchase with an eCheck. As the merchant, you may find the process a bit confusing, as it differs considerably from the credit and debit card transactions you encounter every day.

To speed the transaction along, you let your payment processor manage the details, and the customer goes on their merry way. If a discrepancy arises later, however, you have virtually no leverage in the situation. You must follow the payment processor’s instructions for settlement of the dispute.

May Be Subject to Long Wait Times

Let’s assume the transaction goes smoothly, and the customer is happy with their purchase. You must still wait four (or more) business days for the eCheck funds to appear in your business’ bank account. If your store operates on a tight margin, and you depend on your sales proceeds to fund other aspects of your business, that can negatively impact your operations.

eChecks May Bounce

Finally, realize that just like paper checks, eCheck payments can bounce if the customer doesn’t have sufficient funds. The money is not immediately deducted from the customer’s bank account, and there’s no guarantee the funds will be available when the transaction does hit the account. Like a bounced paper check, a dishonored eCheck can trigger penalties and/or fees against the customer.

Is eCheck Payment Processing Right for Your Business?

Certain types of businesses may find that eCheck payment processing is a good payment option. Typically, these companies accept high-dollar payments, so the businesses appreciate eChecks’ low processing fees. On the flip side, eChecks present headaches for other types of businesses, making this payment option a less attractive choice.

Businesses That Can Benefit From eCheck Payments

Mortgage lenders, landlords, auto finance companies, and other businesses that accept larger payments appreciate eChecks’ reduced processing fees.

eChecks are also widely accepted for recurring payments. For example, a landlord may ask tenants to complete a recurring rent payment form with their account information. Every month, on the same day of the month, the landlord will automatically deduct the rent payment from the tenant’s checking account.

In addition, fitness centers, cable companies, mobile phone providers, and other membership-based businesses rely on monthly eCheck payments’ income. Once the payment contract is in place, the business can generally expect to have a steady stream of income with little (if any) customer involvement.

Businesses that Should Avoid eCheck Payments

So-called “high-risk” businesses may have trouble finding a payment processor that will handle their eCheck needs. High-risk companies include cannabis or CBD product retailers, casinos or gambling services, cigarette and vape shops, pawnshops, telemarketing services, travel services, nutrition-related ventures, etc. Adult-oriented businesses present a definite “red flag” warning.

Although some payment processors and financial institutions will accept high-risk clients, that acceptance comes with a rather stiff cost. High-risk businesses will likely have to pay increased processing rates, potentially making eChecks more trouble than they’re worth.

eCheck Payment Processing vs Credit Card Processing

The major difference between eCheck payment processing and credit card processing is the time required to clear the funds. Consider that eChecks and paper checks are essentially the same form of payment, so they’re both subject to similar regulations. Both forms of payment take four (or more) business days to clear following the transaction’s completion.

In contrast, let’s say a customer pays for their purchase with a credit card. Those funds are applied to the customer’s account almost immediately, and you’ll likely receive the proceeds in your bank account soon thereafter. In fact, if you’re a Payment Depot client, credit card purchase funds will be deposited the day following the transaction’s completion.

For this reason, credit card processing is a more workable option for small- and medium-sized businesses. Many companies run on strict budgets, and the COVID-19 pandemic’s impacts have stretched operating funds even further.

By accepting credit card payments rather than eChecks, you’ll receive your funds with minimal delays. This will help you to gain more flexibility in other aspects of your business. Contact us today to learn how Payment Depot can help you save up to $400 in credit card processing costs every month.

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