Electronic Checks: Definition, Benefits and How e-checks work?

Admin
May 17, 2023

What is E-Check Payment System?

An electronic check, or e-check, is a form of online payment where money is electronically withdrawn from the payer's checking account and deposited into the payee's checking account. It is transferred via the Automated Clearing House (ACH) network.

How e-checks work

How e-checks works



A business can withdraw payments for a good or service directly from their customer's bank account with the help of an ACH merchant account. To complete the transaction, the payment should be authorized by the customer either by a signed contract, accepting website terms and conditions, or a recorded voice conversation.

Definition of E-Check

An electronic check is a type of electronic fund transfer (EFT) that uses the Automated Clearing House (ACH) network to process the payment online. In e-check, the money is electronically withdrawn from the payer's account to the payee's banking institution via the ACH network and then electronically deposited into the payee's account- similar to a paper check, but it is done electronically.

Security Features of Electronic Check

Some security Features of E-Check are as Follows:
  • Authentication
  • Public key cryptography
  • Digital signatures
  • Encryptions

How does an Electronic Check work?

Electronic check is a part of computerized banking which also includes ATM deposits and withdrawals, transactions of Debit cards, and other features. This transaction requires the use of different computer and network technologies to gain access to the applicable account data to run the requested actions.

E-checks can be used for any kind of payment or transaction like traditional checks and are also governed by the same laws that apply to paper checks. An electronic check is the first form of electronic-based payment by the United States Treasury for making huge online payments.

Benefits of e-checks

The 12 main benefits of e-checks are as follows:
  1. Improved cash flow
  2. Eliminate bank processing fees 
  3. Reduced deposit preparation time
  4. Online reporting through a secured web-based network
  5. Reduced accounting requirements
  6. Flexibles solution to check to process 
  7. Funds available to merchant within two banking days
  8. Check verification and authorization through a nationwide database
  9. Large national negative database
  10. ID-based check fraud protection available
  11. Positive scoring database
  12. Merchants selected check acceptance controls

How to process an E-Check payment?


How does an Electronic Check work?

Process of E-Check Payment 


Request Authorization:

The business needs to gain authorization from the customer to make the transaction. The authorization can be gained via an online payment form and  signed order form.

Payment Set Up:

After the authorization, the business inputs the payment information into the online payment processing software. If it is a recurring payment, this information also includes the details of the recurring schedule.

Finalize and Submit

Once payment information is properly entered into the software, the business clicks "Save" or "Submit" and starts the ACH transaction process.

Payment Confirmation

The payment is automatically withdrawn from the customer's bank account and after that, the online software sends a payment receipt to the customer. And now, the payment itself is deposited into the business's bank account.


Also Read :

What is EDI (Electronic Data Interchange)?


 References and Sources

https://www.investopedia.com/terms/e/electroniccheck.asp

https://www.linkedin.com/pulse/how-echeck-work-arun-kumar

https://paysimple.com/blog/how-do-echecks-work

https://payment.ninja/payments-digest/echecks-guide-to-understanding-how-electronic-checks-work

Admin

Admin

Hi, I am Author, and I'm excited to share my expertise with you through my l blog. As an expert in my field, I'm passionate about providing valuable insights and practical tools to help students and researchers achieve their academic and professional goals.

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