An electronic check, commonly referred to as an “eCheck” and also known as an “ACH Direct Debit,” is a digital version of a traditional paper check. When you use an eCheck, 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 check, 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.

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

What’s in this article?

• How do eChecks work?
  
• Benefits of accepting eChecks for businesses
  
• Challenges of accepting eChecks
  
• Best practices for accepting eChecks
  
• Which Stripe products enable eCheck payments?
  
• How to accept eChecks using Stripe
  

How do eChecks work?

eChecks transfer funds from one bank account to another. The digital nature of eChecks speeds up the process and is more convenient and secure than paper checks. Here’s an overview of the typical process:

• Authorization: First, the payer must give explicit permission for the funds to be withdrawn from their bank account. They can authorize the transaction via a secure online form, a phone call, or a signed document.

• Collection of bank details: After obtaining authorization, the payee collects the necessary banking information from the payer. This usually includes the bank’s routing number and the payer’s account number.

• Submission for processing: With the authorization and bank details in hand, the payee submits this information via a specialized payment gateway or other software. 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 checks out, 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. This could happen almost immediately or may take a few business days, depending 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, completing the entire process.

Benefits of accepting eChecks for businesses

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

• Cost-effectiveness
  eChecks have lower transaction costs compared to credit card payments. This is especially impactful with high transaction volumes.

• Security measures
  eChecks use the ACH network for transactions, which includes numerous security protocols such as encryption and authentication. These features create a safer transaction environment for both businesses and customers.

• Faster processing time
  While traditional checks can take several days to clear, eChecks 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 expenses that require short-term liquidity.

• Convenience
  eChecks 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.

• Fewer chargebacks
  The ACH network includes features that make it more difficult for customers to initiate chargebacks, compared to transactions facilitated by credit card networks. Fewer chargebacks mean fewer administrative headaches and less potential lost revenue.

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

• Increased customer satisfaction
  Providing multiple payment options, including eChecks, accommodates a broader range of customer 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 consumers and businesses still avoid using credit cards due to various concerns like high fees or the potential for debt accumulation. Offering eChecks as an alternative could make your business more appealing to these segments, potentially widening your customer base.

• Regulatory compliance
  The use of eChecks is regulated by US law, which offers a structured dispute resolution process and provides protections against fraudulent activities.

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

Challenges of accepting eChecks

Electronic checks are considered to be fairly safe and secure for businesses and customers — but they still have potential risks. Here’s a quick overview of common challenges associated with accepting eChecks as a payment method:

• Fraud risks
  Even though eChecks are generally secure, no payment method can completely protect against fraud. Techniques like account hijacking or the use of stolen account information can still occur, so it’s important to adopt preventative strategies, like vigilant transaction monitoring and additional security layers.

• Insufficient funds
  Just like traditional checks, eChecks are subject to the risk of insufficient funds in the payer’s account.

• Operational adjustments
  Businesses that have not previously accepted eChecks 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 time and resources.

• Transaction reversals
  An eCheck transaction can be reversed after it has been deposited into the recipient’s account, which is challenging for revenue assurance. These reversals can 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’ll need to use alternative payment methods for global transactions.

• Initial setup fees and ongoing costs
  Depending on your financial institution and specifics of your business operations, there may be fees associated with setting up the capability to accept eChecks. While these costs are generally cheaper than credit card transaction fees, don’t overlook them.

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

• Regulatory complexity
  As a regulated payment method, eChecks 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 eChecks 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 eChecks, 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 eChecks

Determining the best approach to accepting and managing electronic checks requires understanding your needs, your specific vulnerabilities, and your customers’ preferences. Your strategy will likely vary from that of comparable businesses. However, there are some generally accepted best practices for accepting eChecks:

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 double-check 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 machine learning algorithms to monitor transactional behavior over time. These algorithms adapt to normal behavior and can flag genuinely suspicious activities, compared to static rule sets.

Transaction and security audits

Transactional logs can supply data for behavioral analysis. Apply machine learning to analyze 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.

Customer education

Provide customers with an interactive digital dashboard where they can track the status of their eCheck 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.

Process and tool refinement

Consider scheduling your eCheck processing based on statistical data, like high-traffic hours and the typical duration between a check’s issuance and its clearance. Optimizing this can minimize system resource strain, reduce costs, and give you a better sense of when the transaction will be complete.

Select a 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.

Which Stripe products enable eCheck payments?

Stripe’s entire suite of payment solutions is designed to let businesses accept eChecks in a variety of ways, based on how and where they accept customer payments. A quick list of Stripe products that facilitate eCheck acceptance include:

• Stripe Checkout: Checkout is a hosted payment page that allows you to integrate a prebuilt checkout experience into your website. To accept eChecks here, specify “ACH Debit” as an accepted payment method when setting up your Checkout Session. This offers your customers a straightforward way to enter their bank information.

• Elements: If you prefer to use a customizable form, Elements provides UI building blocks that create a compliant payment form for your business. With Elements, you can easily add an “ACH Debit” form to your checkout process. Elements handles the more sensitive aspects of data collection and security compliance, freeing you from this complexity.

• Invoicing: Stripe Invoicing lets you send digital invoices that customers can pay via various methods, including eChecks. When setting up an invoice, choose ACH Debit as one of the payment methods. Once the invoice is sent, customers can enter their bank information directly into Stripe’s secure invoice interface.

• Payment Links: If you’re looking for a quick solution that doesn’t require a website, Stripe Payment Links can help. You can create a Payment Link that accepts ACH Debit payments and then share this link with your customers. They’ll be directed to a Stripe-hosted payment page where they can complete the transaction.

• Subscriptions: For recurring payments, the Stripe subscriptions service can streamline your process. Within the subscription setup, specify that you accept ACH Debit to enable eCheck payments for your subscription services.

How to accept eChecks using Stripe

Below are the common steps to accept eChecks using all of the previously mentioned Stripe products:

• Account setup: Visit Stripe’s website and follow the account registration process, including email verification and business information submission. When that’s done, you’ll gain access to your Stripe Dashboard.

• ACH Direct Debit activation: Stripe supports ACH Direct Debit transactions for accepting eChecks. To enable this, go to your Stripe Dashboard, locate the “Settings” section, and search for ACH. Activate it, and your account will become capable of handling eCheck payments. Stripe usually requires verification for this—like proof of business—so be prepared to upload the necessary documentation.

• Choosing a Stripe product: Understand your payment flow to help you decide which Stripe products to integrate. Would your customers prefer one-time payments, or are you offering subscription services? For recurring payments, subscriptions will be your best option. If you need a customizable solution, you might want to employ Stripe Elements. For quick setups, Stripe Checkout or Payment Links might be more appropriate.

• Implementation: To learn how to implement the Stripe solution you’re working with, go here for instructions on integrating payment forms, checkout pages, recurring billing, and direct payments.

• Testing: Stripe provides test bank accounts to simulate ACH Debit transactions. Use these to validate that your payment system works correctly.

• Compliance: Make sure you comply with all regulatory requirements concerning ACH Debit transactions. Stripe helps with many of these, but you’re responsible for your business’s compliance.

• Going live: After testing, you can switch from “view test data” to “view live data” in your Stripe Dashboard to start accepting real eCheck payments.

• Review and monitor: Use Stripe’s extensive Dashboard analytics to monitor payments, look for any unusual activities, and get detailed insights about your revenue.

To learn more about eCheck acceptance with Stripe, go here.