eCheck vs. ACH What Is the Difference?

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Many terms exist to describe types of automatic payments and it can be hard to understand what they all mean. At a high level, the broadest category is electronic funds transfer (EFT). Automated Clearing House (ACH) payments and eChecks are two examples that fit under EFTs. eChecks and ACH are two terms often used interchangeably. However, they have distinct differences. ACH transactions include various forms such as payroll and interest, while eChecks refer only to electronic transactions completed between checking accounts.

 

What is an Electronic Check or eCheck?

An eCheck is a type of ACH payment that involves transferring money between two checking accounts. This payment method goes by several other names, including electronic check, direct debit and internet check. Many businesses incorporate eChecks into their systems to accept large amounts of money. Companies that operate solely online also benefit from eChecks because they offer customers an additional payment option for transferring funds.

eChecks function much like paper checks but have an advantage because they do not become outdated. They also process faster because they skip the manual deposit process of sending a check and waiting to bring it to a bank. Typically, eChecks process in 24 to 48 hours. Customers also get more security through eChecks than they would with traditional payment methods, making them an appealing option for those sending and receiving funds.

It’s important to note that a business must work with a processing company to use electronic check ACH transfers. eChecks require particular software for safe and effective use.

 

How Do Electronic Checks (eChecks) Work?

Unlike a regular paper check, a business making an eCheck payment doesn’t write or print information onto a piece of paper. Instead, the payer enters all information electronically from one account to the other. Typically, the payee will send an online form where customers enter their checking account information and the amount paid. Payees can also accept eChecks over the phone with recorded phone calls. This process can save time and reduce paper use, creating positive environmental effects.

Another important note is that merchants must pay a small fee to process eChecks. The price is minimal and often worth the cost due to the added convenience and savings gained by not having to print and mail paper checks.

Other potential benefits for businesses when accepting eChecks include:

  • Convenience: Depositing checks at the bank can be time-consuming for customers and businesses. The use of eChecks makes it easier to facilitate transactions without requiring extensive work for administrative staff. Additionally, eChecks often clear much faster than traditional checks, allowing businesses to access funds faster.
  • Cost-effectiveness: eChecks generally have lower transaction fees compared to credit card payments, making them ideal for high transactions. Due to several features implemented by the ACH network, customers who use eChecks may also be less likely to initiate chargebacks compared to transactions with credit card companies. Fewer chargebacks can help businesses avoid potential lost revenue.
  • Improved cash management: Fewer administrative obstacles and faster processing times contribute to better insights into funds, particularly for businesses with tight operating margins. Quicker access to funds can help facilitate better decision-making about expenses.
  • Increased customer satisfaction: Businesses that offer multiple forms of payment can access a broader range of customer preferences. Accepting eChecks can make businesses more appealing to customers looking for flexibility and ease of payment.

How eCheck Processing Works

Businesses desiring to implement eCheck processing may want a more in-depth look at how the process works. Here’s a step-by-step explanation:

  1. Reach out for authorization: All ACH payments, including eChecks, require approval from both parties by sending a signed order form, speaking on the phone or filling out an electronic form.
  2. Enter payment information online: To begin processing information, you must enter customer information, including the bank’s routing number, account number, name, address and federal tax identification number.
  3. Confirm and submit: After filling out all necessary fields, your business should ensure all information is correct and confirm submission through the software or payment gateway.
  4. Initiate transfer: Submitting the payment details to the ACH network triggers the transfer of funds and coordinates with the bank for verification and movement of money.
  5. Bank verification: Once the payer’s bank receives the account information and confirms the availability of funds, they will approve the transaction for processing.
  6. Process payment: Once you submit a payment and the transaction is approved, the payer’s account will automatically withdraw the amount within three to five days.
  7. Receive confirmation: When the transaction is complete, both parties generally receive confirmation receipts that show the check amount and other details.
  8. Record keeping: The electronic process means the parties receive electronic records, which are often easier to manage and retrieve for accounting or auditing purposes.
  9. Settlement: The process is officially complete once the ACH settles the transaction with both banks.

What Is ACH Processing?

eChecks are a type of ACH payment but not the only kind that exists. Broadly, ACH refers to the Automated Clearing House, a federal EFT system run by the National Automated Clearing House Association (Nacha). The network moves money directly between banks for ease and security in transferring money. Consumers, businesses and governments use this funds transfer method.

ACH processing has two main categories—credits and debits—so you can send money to customers or request that customers pay you. Here are a few primary uses for ACH transactions:

  • Refunds (including taxes)
  • Interest payments
  • Government benefits
  • Payroll
  • Employee expense reimbursement
  • Mortgages
  • Financing
  • Direct deposits

ACH payments offer a range of advantages over other payment methods, including:

  • Low transaction costs: ACH payments charge a per transaction fee, no matter the payment amount, which is significantly more affordable compared to some traditional payment methods like credit cards, wire transfers, checks or cash.
  • Secure payments: ACH processing provides secure payments by facilitating direct transactions between the payer and payee without any interference from a third party. This process can help reduce the chances of fraud or payment errors like misused credit card information, cash theft or bounced checks.
  • Repeatable and reversible transactions: Some electronic payment methods require customer bank account information at each transaction. ACH offers recurring payments and automated transactions for customers and businesses, helping to reduce missed payments, save time and keep private information secure. ACH payments are also reversible, which can reduce the risk of fraud.

How Does ACH Processing Work?

The ACH network connects thousands of banks and other financial institutions across the United States. When a business or individual pays or requests payment, the request gets batched with other transactions. Here’s an example of the process for ACH direct payment:

  1. Receive authorization: Before your business can bill a customer, you must receive permission through an authorization form that allows you to pull money from the customer’s bank account.
  2. Information collection: Next, your business must provide details about the transaction to your bank, including routing numbers, bank account information and transaction type. The depository institution in the ACH network is known as the Originating Depository Financial Institution (ODFI).
  3. Collecting and batching: The ODFI collects all transaction files and forwards them to be processed. During processing, the Federal Reserve or a clearinghouse receives the batch of transactions.
  4. Receiving and distribution: The institution sorts them to determine which bank the payment must come from and which bank receives it, known as the Receiving Depository Financial Institution (RDFI). The recipient’s bank account gets the transaction and reconciles both accounts, which completes the transfer process.

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eChecks vs ACH: Breaking Down the Differences  

eChecks are a specialized form of ACH transaction, so these two electronic payment types have many similarities. Both are processed electronically, use the same network for processing and require authorization before making or receiving a transfer. They also have the same transaction limit.

Though eChecks and ACH have many similarities, comparing electronic checks vs. ACH brings out a few differences, including:

  • Payment time: Both electronic transfer types take about four business days to process. However, those receiving eChecks may at times wait up to five days to receive the money.
  • Technology used: eChecks were not available when the ACH was first created. This payment type was added to the system after new technology was developed and requires using an eCheck service.
  • Payment uses: eChecks are more specialized than ACH transactions, usually for one-time expenses. This means the banking information is not stored once the transaction is complete. ACH covers recurring costs that occur on a schedule and stores the payment information for future deductions.
  • Cost per transaction: ACH and eCheck transactions typically charge fees based on a percentage of the total transaction, but the fees charged for eChecks are often much lower. ACH payments may present chargeback, reversal or return fees in some cases. Both payment types have lower costs to process than credit card transactions.

Choosing a Payment Method Between eCheck and ACH

ACH payments and eChecks offer affordability, speed and security, making them appealing money movement options for merchants and customers. You can refer to the difference between eCheck and ACH these payment types to decide which is best for your business’ needs.

For example, a recurring expense like payroll is better handled through ACH than an eCheck. Payments from customers to your business might work better with an eCheck. Companies that see benefits in both types of transactions can often get them together since they use the same system.

How Can CSG Forte Help You Process eChecks and ACH Payments 

eChecks are a secure, fast and convenient way to receive payment from customers, but you need a processor that accepts this payment type. CSG Forte offers a payments platform that accepts eChecks, ACH transactions and credit and debit cards on a single platform. Our system integrates with existing ones and can be customized to meet changing business needs.

 

Contact one of our payment experts to learn more about how our complete payments solution can benefit you. You can also explore ways to get started with our solutions.