There are so many ways for a business to take payments these days it is almost dizzying. Of course you take credit cards but can you integrate with mobile wallets? Can people pay with their phones? Can your customers pay you online as well as in person, how about over the phone? Credit card us is at an all time high with people trying to earn all the points and miles that they can in order to get the most out of a cashless society. But electronic direct payments are also more popular than you’d think. Whether you refer to it as an eCheck, EFT (electronic funds transfer) or ACH payment electronic payments account for over $40 trillion in payments annually.
But what exactly is an eCheck and who benefits from accepting them?
Here we will delve into what the different terms mean and what types of businesses can benefit from accepting them.
What is an eCheck?
It is basically an electronic check, a way to pay a company for services rendered. However, instead of writing them a physical check that they then have to deposit and wait for the money to be credited to their account the funds are transferred immediately. We see eChecks in everyday uses such as employers making direct deposits to their employees for payroll, the IRS sending a tax refund, and when people set up automatic withdrawal for things such as gym memberships.
Is it different than ACH?
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.
EFT or electronic funds transfer is a term that encompases many types of ways to transfer funds including wire transfer, direct deposits and electronic benefits payments, as well as eChecks. So basically the eCheck is the type of electronic funds transfer where ACH refers to the network banks use to process these types of payments. The ACH network facilitates the movement of money electronically from one banking institution(the payor’s) to another institution where it is deposited into an account (the payee’s). However, despite the basic difference these terms are often used interchangeably to refer to an electronic payment.
How do eChecks work?
First the business needs to receive authorization from the customer to make the withdrawal for payment. This is usually done through an online payment form but can also be accomplished with a signed order form or even with a phone conversation. After the business acquires the customer’s authorization to make the withdrawal the information is transferred to the payment gateway, this would include any information needed if it will be a recurring payment including the ongoing payment schedule.
After all the correct information is in the system the business submits the payment request to the customer’s bank beginning the process. Once the bank has verified the funds are available they complete the transaction by automatically withdrawing the payment from the customer’s account and sending a payment confirmation to the customer. The funds are then deposited into the merchant’s account and are usually available within 24hrs.
Who uses this type of payment?
There are a lot of people who, in this day and age with so much credit card fraud, feel that it is much safer to pay with an eCheck. For whatever reason they do not want to enter their ATM card number and feel much safer sending a payment with just their routing number and bank account number. It is so common that most people make eCheck payments without even realizing that is what it is. Your very own online bill pay through your bank is a great example. The types of companies that utilize the electronic payments most include companies who charge for high-cost items such as rent, mortgage or car payments, and high-cost monthly fees such as legal retainers and fitness memberships. But also utility companies, insurance and financial services are great examples where we are using the system on an everyday basis.
Why would you want to accept eChecks?
Accepting eChecks offers many benefits for the merchant. First of all, it’s the perfect solution for business who deal with recurring direct payments such as membership fees. Offering alternative payment options means more flexibility for new and existing customers and can increase brand loyalty. You can even accept an eCheck over your mobile device anywhere, customers can make instant payments with confidence while you expand your sales.
It speeds up the overall bookkeeping process and streamlines the payment process by allowing you to accept payments immediately and get your deposits automatically, even when the business is closed. Because of the automatic nature of electronic payments it virtually eliminates the incidence of bad checks since the ACH process verifies the funds before authorizing the payment.
No more trips to the bank to deposit paper checks, but it also speeds up the deposit process and saves paper. Lower transaction fees are another distinct benefit of accepting eChecks. Often times the fees for processing eChecks is less expensive than credit card transactions. Rather than the typical transaction fee based on the amount of the sale, ACH transactions are charged a flat fee per transaction which can save a business a lot of money when they are selling a lot of big ticket items.
Many payment programs include features that help to protect the merchant such as check verification and guarantee to make sure there is in fact enough money in the account the clear the payment.
Effectively lower your chargeback rates. Because electronic payments are sent directly from the customer’s bank account it allows you to avoid a chargeback on your merchant account. It also gives you the opportunity to deal directly with the customer when there is a problem s that you have a better chance of making good on the sale and keeping a happy customer.
How do you accept them? (Simple through a payment gateway).
In order to accept eChecks you must have an ACH merchant account which Bankcard Brokers can set you up with quickly and efficiently. Our industry leading ACH processing program seamlessly integrates with your existing system. If you are a high risk business subject to high chargebacks it can often be easier to get an ACH merchant account.
Contact us today to learn how e-checks could boost your business.