Businesses that rely on traditional payment methods like paper checks or wire transfers often face delays, high processing fees, and security risks. eCheque payments provide a faster, more cost-effective payment solution that can help improve cash flow while collecting funds from a customer’s bank account.

An electronic check, commonly referred to as an “eCheque”, is a digital version of a traditional paper check. When you use an eCheque, the funds are electronically transferred from the payer’s checking account to the payee’s account via ACH payment. This is similar to the process that takes place with a paper cheque, but much faster and without the physical element.

Nacha, the system that governs ACH payments, reported handling 30 billion transactions worth $76.7 trillion in 2022. The number of transactions and their total amount has consistently grown over the past decade. For businesses, accepting eCheques is an efficient way to collect payments, particularly for large or recurring payments such as rent and high-value purchases.

Below, we’ll talk about what you need to know to accept eCheques from customers as reliably and efficiently as possible – no matter what channel you’re using.

What’s in this article?

• How do eCheques work?
  
• Benefits of accepting eCheques for businesses
  
• Challenges of accepting eCheques
  
• Best practices for accepting eCheques
  
• How Stripe Payments can help
  

How do eCheques work?

eCheck Payment processing transfers Funds electronically from one bank Account to another through the ACH network. The digital nature of an eCheque Payment speeds up the Process and is more convenient and secure than paper cheques. Here’s an Overview of how the Process works:

• Authorisation: First, the payer must give explicit permission for the Payment amount to be electronically withdrawn from their bank Account. They can authorise the transaction via a secure online form, a phone call, or a signed document.

• Collection of bank details: After obtaining authorisation, the payee collects the necessary banking information from the payer. This usually includes the bank's sort code number and the payer's account number.

• Submission for processing: With the authorisation and bank details in hand, the payee submits this information via a specialized Payment gateway or other Payment software that supports eCheque Payment processing. The submission triggers an electronic Process to initiate the transfer of Funds.

• Initiation of the ACH transaction: The automated clearing house (ACH) network facilitates the movement of money and information between the banks involved. The payee's bank submits the payment details to the ACH network, which then coordinates with the payer's bank for verification and transfer.

• Verification: Upon receiving the request, the payer's bank verifies the account information and availability of sufficient funds. If everything is correct, the bank approves the transaction for further processing.

• Funds transfer: Once approved, the ACH initiates the transfer of Funds from the payer’s bank account to the payee’s bank account. Timing depends on various factors, including the institutions involved and the specifics of the ACH network’s processing schedule. (It settles payments four times a day, but is offline on weekends and holidays.)

• Confirmation and record keeping: After the transaction successfully completes, both parties typically receive confirmation receipts. These electronic records are easier to manage and store compared to paper records, and they can be easily retrieved for auditing or transaction history.

• Settlement: Finally, the ACH settles all transactions with the banks.

Benefits of accepting eCheques for businesses

The value of accepting electronic cheques depends on how well a business manages them within its overall payment ecosystem. Here are some of the potential benefits for businesses:

• Cost-effectiveness: eCheques have lower processing fees compared to credit card payments or wire transfers. This is especially impactful with high transaction volumes.

• Security measures: eCheques use the ACH network for transactions, which includes numerous security protocols such as encryption, authentication, and fraud prevention. These features create a safer transaction environment for both businesses and customers and protect sensitive data like bank account numbers.

• Faster processing time: While traditional checks can take several days to clear, eCheques often clear within a single business day. This speedier clearance time improves the rate at which businesses can access funds, which is especially beneficial to companies with tight operating margins.

• Improved cash management: With faster processing times, businesses can more accurately forecast their available funds. This improves decision-making about investments, payroll, and other operating expenses that require short-term liquidity.

• Convenience: eCheques are convenient for both businesses and customers. There’s no need to visit the bank to deposit checks, and many financial software systems can automatically record these transactions, reducing administrative workload.

• Dispute mitigation: ACH payments typically require bank account verification, requiring the customer to provide evidence that they have access to the bank account being debited. Such features help reduce fraudulent transactions, leading to lower disputes and potential for lost revenue.

• Environmentally friendly: eCheques are a paperless method of payment, aligning with the environmental values of many modern customers and businesses. Reducing the use of paper checks also decreases the need for physical storage space.

• Increased customer satisfaction: Providing multiple payment options, including eCheques, accommodates a broader range of customer payment preferences, making it easier for them to do business with you. This kind of flexibility can improve customer satisfaction and loyalty.

• Access to a broader market: Some customers and businesses still avoid using credit cards due to various concerns like high fees or the potential for debt accumulation. Offering eCheques as an alternative could make your business more appealing to these segments, potentially widening your customer base.

• Recurring payments and subscriptions: eCheques are highly suitable for recurring payment structures like subscriptions, thanks to their lower fees and security features.

Challenges of accepting eCheques

Electronic cheque payments are considered to be fairly safe and secure for businesses and customers – but they still have potential risks and challenges. Businesses that accept eCheque payments need to consider these factors for smooth operations and risk mitigation.

Here are common challenges associated with accepting eCheques as a payment method:

• Fraud risks: No payment method can completely protect against fraud. Techniques like account hijacking or the use of stolen account information can still occur and lead to unauthorised transactions. It’s important to adopt preventative strategies to reduce risk, like vigilant transaction monitoring, account verification, and additional security layers.

• Insufficient funds: Just like traditional cheques, eCheques are subject to the risk of insufficient funds in the payer’s account. There is no real-time authorisation to verify available funds before processing the payment.

• Operational adjustments: Businesses that have not previously accepted eCheques may need to modify their accounting and bookkeeping practices to accommodate this new method. This could involve changes to software systems or additional staff training, which requires additional time and resources.

• Transaction reversals: An eCheque transaction can be reversed after it has been deposited into the recipient’s account, which is challenging for revenue assurance. These reversals mostly happen up to 60 days after the transaction, creating an extended period of uncertainty.

• Limited international use: The ACH network primarily supports US financial institutions. If a major portion of your customer base is international, you should consider using alternative payment methods for global transactions, such as wire transfers or credit card payments.

• Initial setup fees and ongoing costs: Depending on your financial institution and specifics of your business operations, there may be setup fees. While these costs are generally cheaper than credit card transaction fees, don’t overlook them. Some eCheque services could also charge monthly fees, transaction fees, or per-payment fees that could reduce business cash flow.

• Customer reluctance: Despite their advantages, eCheques are still not as widely used or understood as other methods like credit cards or even traditional cheques. Educating customers about the benefits and security features of eCheques may require an investment in marketing and informational resources.

• Regulatory complexity: As a regulated payment method under the electronic fund transfer (EFT) regulations, eCheques come with a set of legal obligations, including consumer rights and fraud protection measures. This complexity can be especially challenging for small businesses that might not have dedicated legal resources.

• Delayed transaction confirmation: Although eCheques typically clear faster than their paper counterparts, they don’t offer the instant payment confirmation that credit or debit card transactions do. This could be a disadvantage in scenarios that require – or benefit from – immediate verification.

• System compatibility: Not all financial software is configured to handle eCheques, so businesses may need to update their systems or invest in new software. This transition requires a monetary investment and may involve educating staff.

Best practices for accepting eCheques

Determining the best approach to accepting and managing electronic checks requires understanding your needs, your specific vulnerabilities, and your customers’ preferences. While each company’s strategy may differ, adopting industry best practices can improve operations, reduce fraud risk, and increase cash flow.

Here are some generally accepted best practices for accepting eCheques:

• Stricter authentication processes: When selecting a third-party service for account and identity verification, look for features like real-time validation against live banking data. The goal is to spot inconsistencies before a transaction occurs, which greatly reduces the risk of fraud. Implement a dual verification process where a customer’s identity is confirmed both at transaction initiation and at its conclusion. This dual-validation method can catch errors or unauthorized activities before funds are transferred, providing another opportunity for fraud prevention.

• Advanced security configurations: Implement a role-based access control system within your payment software. By providing tiered levels of access to employees based on their job functions, you reduce the risk of internal fraud or data mishandling. Employ AI algorithms to monitor transactional behaviour over time. These algorithms adapt to normal behaviour and can flag genuinely suspicious activities or potential fraud, compared to static rule sets. Encrypt all bank account numbers and payment information during data transmission, to prevent data breaches.

• Transaction and security audits: Transactional logs can supply data for behavioural analysis. Apply AI to analyse logs and identify patterns that may indicate fraudulent activities. Periodic internal audits should also include stress testing your security measures and identifying potential vulnerabilities in your process that could be exploited. Implement automated reconciliation tools to verify duplicate eCheck transactions and ensure that payments are processed only once.

• Customer education: Provide customers with an interactive digital dashboard where they can track the status of their eCheque transactions in real time. Equip this dashboard with features like push notifications for significant transactional milestones to encourage active engagement. Create content resources that guide customers through problem scenarios they might encounter, such as failed transactions or disputes. Make sure these guides offer specific solutions, giving customers a sense of empowerment and reducing their reliance on customer service. Clearly outlining the benefits of eCheques and how they differ from other payment methods, such as wire transfers and credit card payments, can improve adoption.

• Process and tool refinement: Consider scheduling your eCheque processing based on statistical data, like high-traffic hours and the typical duration between a cheque’s issuance and its clearance. Optimising this can minimise system resource strain, reduce costs, and give you a better sense of when the transaction will be complete. Select a scalable payment gateway that can adapt to future changes in the payments ecosystem. Given the rapid rate of technological evolution, locking yourself into a rigid system could result in future inefficiencies and missed opportunities.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business – from scaling startups to global enterprises – accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimise your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 100+ payment methods, and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalise interactions, reward loyalty, and grow revenue.
  
• Improve Payments performance: Increase Revenue with a range of customisable, easy-to-configure Payment tools, including no-code Fraud protection and Advanced capabilities to improve Authorisation rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person Payments, or Get started today.