A CPA's Comprehensive Guide to eCheck Payment Processing

Content originally appeared on the CPACharge blog.

Electronic forms of payment are the dominant preference among consumers today. Credit and debit cards have largely replaced cash, not only because of the convenience they provide, but also due to the significant rise in online shopping and services offered over the internet.

Another popular, but less talked about, form of electronic payment is eCheck, a term that has probably crossed your path at one point or another. If you’ve been curious about how eChecks work and if they’d make sense for your practice, you’re in the right place!

In this comprehensive post, we’re breaking down everything you need, and ever wanted, to know about eCheck payments.

A Brief History of eCheck Payments

As you likely guessed from the name, eCheck is essentially an electronic version of a traditional paper check.

More specifically, eCheck payments allow a payer to electronically send funds directly from their bank account to a payee’s bank account, assisted by a vast network of interconnected financial institutions called the Automated Clearing House network (ACH).

Any payment in which funds are moved electronically between two bank accounts is known as an ACH payment. If you’ve ever made a rent payment, mortgage payment, car payment, or any other large payment electronically, you’ve made a payment using the ACH network.

The ACH network was founded in the 1970s by the National Automated Clearing House Association (NACHA) to expedite the payroll process across the country by clearing checks faster and more efficiently. Each transaction is initiated by an ACH operator and delivered to a receiver. Or, in more formal terms, ACH transactions come from an Originating Depository Financial Institution (ODFI) and are sent to a Receiving Depository Financial Institution (RDFI). According to NACHA, as much as $43 trillion moves across the ACH network every year.

Advantages of eCheck Over Paper Checks

Thanks to their digital nature, eChecks eliminate many of the tedious steps paper checks still have to go through to process and deposit today. While eCheck processing is quite similar to traditional paper check processing in many regards, the biggest difference between the two is speed—eCheck processing is significantly faster.

Without the need to mail or deliver a physical check, processing can begin as soon as money is moved online, which means you can expect deposits to turn around much faster.

Switching to eCheck can also help future-proof your payments system.

Recent trends show paper checks have been on a steady decline over the last decade. One study indicated that over 50 percent of consumers don’t carry checkbooks, while another study revealed that 38 percent of people never write personal checks. In fact, through the better part of this decade, paper check usage to pay bills dropped by as much as 20 percent, according to one consumer report.

The bottom line? Online forms of payment are vastly preferred compared with traditional payment methods.

The faster you can offer your clients online payment options, the better off your practice will be.

The Four Stages of eCheck Processing

The entire process of an eCheck payment is fairly simple and can be narrowed down into four specific stages:

1. Authorization In this stage, the payee must receive authorization from the payer that the transaction is valid. When using an online payment processor, this stage is typically handled through its payment request system, where the payer can easily authorize the transaction with a button press. However, eCheck authorization can also be handled through an online form, contract, or even over the phone.

2. Processing With authorization approved, the payment processor can begin the process of transferring the funds between the payer and payee. Again, with an online payment processor, this process is much easier. Typically, the dollar amount is already set within the solution, so once authorization takes place, this step can practically be skipped. Outside of online payments solutions, the payee will need to manually enter the dollar amount and the proper account numbers into an online form.

3. Finalize At this stage, the payment processor goes through a verification procedure to ensure the account and routing numbers between banks are accurate. This is handled either automatically by payments software, or manually, overseen by the payee. If everything is correct, the transaction is officially submitted and enters the ACH system. It’s typically at this point that the funds are transferred out of the payer’s account and sent to the payee.

4. Deposit In this final step, the payer’s funds are deposited into the payee’s bank account (after a certain number of days have passed) and the transaction was successful. Both parties typically receive confirmation of the transaction, either through email or printed receipt. And with that, the eCheck transaction is complete!

Are eChecks Safe?

Every month at least a few hundred people consult Google on the safety of using eChecks. It’s understandable when you consider the fact that unlike credit cards, paper checks are a payment method that hasn’t seen much in the way of innovation for quite some time.

But thanks to substantial foresight on the part of a handful of financial institutions, government agencies, and telecommunications firms, the answer to the question, “Are eChecks safe?” is a resounding yes!

Here’s a rundown of a few reasons you can feel confident about accepting eChecks.

Fact: eChecks Are Safer Than Paper Checks

According to the most recent AFP Payments Fraud and Control Survey, 74 percent of participating organizations experienced check fraud in 2017. But less than half were the targets of electronic fund transfer (EFT) fraud.

Paper checks pass through more hands than eChecks (literally and figuratively), which creates more opportunities for fraud and/or interception by criminals. But with eChecks, the information is transmitted directly to the financial institution.

Additionally, a paper check can be missing important details such as the date or signature or have incorrect information and still be processed and cleared. But if something is wrong with an eCheck, the transaction won’t be initiated until the issue is resolved.

Check Acceptance Services Automatically Detect Potential Fraud

When a client’s checking account information is entered (either directly into your payment processing software or via a secured payment page), the payment gateway provider verifies the person providing the information has the authority to use the account via a check acceptance service.

The acceptance service compares the provided client information (for example, first name, last name, and address) to what the issuing bank has on file for the account and confirms it matches. If it doesn’t, the payment is declined. The eCheck authentication process ensures you don’t receive fraudulent payment information and that only authorized individuals are using an account.

In addition, as part of the verification process, the check acceptance service will scan a database of individual and company bank histories and flag a transaction if the account has a history of fraudulent activity.

With the notable rise in popularity of online payments, it’s more important than ever for professionals like yourself to begin accepting them. Whether you’re accepting credit/debit cards, eCheck payments, or both, offering multiple online payment options not only gives you more ways to get paid, but sends a strong message to your current and future clients—you’re a savvy CPA who keeps up with modern trends to run your practice intelligently and efficiently.