Insightful facts of electronic check payments
For small business owners, the funds coming in and those going out are a big concern. The bottom line is always top of mind. Well, here’s a type of payment that could save your business a substantial amount of money: electronic checks.
How do electronic checks differ from paper checks?
Paper checks, of course, are on paper and, in this age of digital payments, are likely destined to become obsolete. When paying for a purchase, fewer and fewer customers take out their checkbook, write out a check, and hand it over to a cashier. If they do, it’s not uncommon for a line of grumbling customers to form behind the check payer, because the process takes so long. Fewer customers are writing checks for monthly home expenses, too, preferring instead to use autopay.
In addition, more and more purchases are made online, inspiring new digital forms of payments that occur invisibly, effortlessly, and quickly. According to BI Intelligence research, online consumer spending in the U.S. will rise to $632 billion in 2020, nearly doubling the amount spent in 2016.
Another thing: paper checks take longer to process than electronic checks. Why is that? There are a few reasons: 1) the business owner must take the time to deposit paper checks at a bank; 2) paper checks require longer processing and hold times than eChecks; and 3) eChecks occur digitally, which speeds up the process.
To sum it up: eChecks are “transmitted electronically, making transactions quicker, safer and easier.”
eChecks vs. credit card payments
Compared to, say, credit card processing, eCheck processing works a bit differently. Most online businesses usually start out with credit card acceptance, as it’s the most common type of payment transaction. But over time, they may consider other forms of payment acceptance––including eChecks.
There are many benefits to electronic check payment processing, including cost savings. Merchants do not have to pay credit card interchange fees when for eCheck acceptance. Rather, small flat fees are the norm for eChecks, and can be as low as 10 cents per transaction with no limit to the transaction amount.
If your business accepts large payments or recurring payments, you could chalk up substantial savings every year by accepting eChecks.
How does eCheck processing work?
eCheck processing uses an electronic network for U.S. financial transactions called Automated Clearing House (ACH). Electronic checks are a type of direct deposit, and ACH uses batch processing to move the funds from one bank account to another.
To get an idea of how much money is safely and efficiently handled by ACH, consider these staggering numbers: “...it moves $43 trillion and 25 billion electronic financial transactions each year.”
Here are the basics of what’s involved in ACH electronic check payment processing:
1) An originator
The originator is you, the merchant cashing the check. You need to initiate the direct deposit process. Basically, you need to provide a secure, online form that requests your customer’s bank and checking account information. You’ll need to know the customer’s bank routing number and checking account number. These two numbers can be found on the bottom of a customer’s paper check and will tell your business bank the exact bank address and specific account from which to withdraw funds.
2) Your business bank
Because the request originates from you, your bank is called the Originating Depository Financial institution (ODFI). They place the ACH entry at your behest, aggregate payments from a variety of customers, then send them in batches to an ACH operator.
3) An ACH operator
4) Your customer’s bank
A Receiving Depository Financial Institution (RDFI) receives the request, verifies that the funds are available, debits your customer’s account, then credits your business account.
5) Your business bank
In one to two days, funds are made available in your business account.
Can your business bring in more money with electronic checks?
Certain types of businesses can specifically benefit from eCheck payments, such as:
This type of business holds an online niche that’s growing at a fast pace: businesses that offer recurring payments, autopay, and auto-renewal. From music to memberships to magazine subscriptions, payments have been put on autopilot for the sake of convenience, and consumers love it.
So do online businesses.
Here’s why. A business can sell a customer on their product once, and continue to collect monthly, sometimes for years. It’s the most efficient sales model out there, and it’s been exploding online over the past few years.
ACH electronic payments help businesses keep payments coming in because rarely do checking account numbers change, while credit card numbers could change often. When numbers change, breakage can occur, and businesses lose customers.
If you have a subscription-based business, whether an online tea-of-the-month club or a health club with monthly fees, it’s time to consider electronic check payments.
Businesses that accept large payments
With ACH moving the funds, banks talk directly to other banks. By eliminating the middlemen involved in processing credit card payments, businesses save money by avoiding interchange fees. If your business regularly processes payments in the hundreds or thousands of dollars, you can potentially save a significant amount of money by accepting electronic check payments.
Is it time to integrate eChecks into your business payment options?
Talk to your bank and your payment processor about electronic check payment processing. They can help you decide whether now’s the right time to incorporate eChecks into your mix of payments and how to get the most out of them.