E-checks are an electronic version of a paper check and are used to make payments online by both consumers and businesses through a data network. If you’ve entered your banking information online to make a direct payment, like with recurring rent or car payments, you’ve probably used an e-check before. The automated clearing house network, or ACH, is used by millions of consumers and businesses to conduct payments, such as paying your mortgage or credit card bill, online.
How Do E-Checks Work?
Businesses use ACH to pay employees their salaries by direct deposit and vendors their bills.
ACH is preferred because payments arrive on time and it eliminates the hassle of delays and lost checks. Payments requests are sent through the ACH before being verified by a customer’s bank.
An e-check is a win-win for both businesses and customers because it enables faster payment processing and immediate access to deposited funds, says Bob Castaneda, who has 50 years of experience in accounting and finance and who serves as chief financial officer at Our Children’s Homestead in Illinois.
“For customers, e-checks can be a securer way of making payments as it eliminates having your personal documents being handled by other people,” he says.
ACH requires payments to be processed within 24 to 48 hours, but total processing times can range from three to five business days. Still, that’s likely faster than waiting to receive a check in the mail.
What Are the Main Benefits of E-Checks?
E-checks are commonly used by businesses and consumers to pay their bills because they are reliable and transactions can be conducted immediately. These transactions are also less expensive for businesses than purchasing checks and mailing them out on a regular basis.
“Electronic checks also save businesses the costs of hiring employees to process checks,” Castaneda says.
These payments are also beneficial because they eliminate the possibility of being late with a payment because of delayed or lost mail. These payments can also be tracked digitally, making it easier for businesses to keep track of payments for employees and vendors and also to see when they receive payments from customers.
[Read: Best Savings Accounts.]
How Can Recurring E-Check Payments Help With Budgeting?
Consumers can budget and plan better because they know when their payments for bills such as a student loan or a car loan will occur. When they receive e-checks, they can also avoid a trip to the bank to deposit their check or having to use a bank’s mobile app to deposit it.
Since there is no interchange fee for e-check acceptance, it is beneficial for individuals or businesses who make substantial, recurring payments, says Michael Reed, president of the payments division of Deluxe, a Shoreview, Minnesota-based business services company.
“Especially valuable in the current environment, e-checks provide a way to send payments without human intervention or manual processes,” he says.
[Read: Best CD Rates.]
Are E-Checks Secure?
Another benefit of an e-check is that it cannot be stolen from an individual’s wallet or mailbox. And paper checks still need to be verified by a bank, which puts an automatic hold on all deposits.
The funds from an e-check are available immediately, and consumers can see if a direct deposit was made by their employer easily by checking online or through a mobile app.
E-checks can eliminate or lower the incidences of fraud. A company uses the routing and bank account information of a consumer or business, transmits the “encrypted information to a service that vets the information across fraud prevention tools and databases to validate the payer’s identity and transaction risk, and the transaction is approved or declined,” says Kevin Poindexter, a former consultant at the Crypsis Group, a McLean, Virginia-based cybersecurity firm that was acquired by Palo Alto Networks.
When you enter your bank account information to make an online payment, you’re probably sending an e-check. Just make sure that whenever you enter account information that it’s going to the business or individual you intend through a secure platform. E-checks, like other online transactions, can be at risk, but it’s important to remember that e-checks still eliminate the risk of having a physical copy of a payment.
[Read: Best Checking Accounts.]
The Pros and Cons of E-Checks
Pros
— Payments process faster and with fewer costs to businesses.
— Eliminate the possibility of being late on a payment due to delayed or lost mail.
— More security offered than with traditional paper checks.
Cons
— Payments can still take three to five business days to process.
— Bank account information needs to be securely exchanged between customers and businesses.
— E-checks can still bounce like traditional paper checks.
Best Example of an E-Check: Direct Deposit Paycheck
Direct deposits are commonly used by employers to pay salaries to their employees. Automatic fund splitting among different accounts can also make it easier for consumers to save.
One of the more frequently used versions of the e-check is the direct deposit system offered by many employers, says Belinda Reany, division vice president and general manager of ADP’s Employee Financial Services Venture. “Before, there was the inconvenience of picking up a check and cashing it.”
Besides direct deposit, other examples of e-checks include online bill payments, tax refunds and e-checks sent through third-party processing systems like PayPal.
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What Is an E-Check? originally appeared on usnews.com
Update 07/09/24: This story was previously published at an earlier date and has been updated with new information.
