Understanding Checks: Comparing ACH vs eCheck
If your business requires you to sell in bulk, it would mean that you need to transfer and receive huge amounts of cash. Checks are usually the most common way to transfer large sums from one account to another. And with the existence of Automatic Clearing House (ACH) and eCheck (Electronic Checks), it's easier to do transactions with other merchants and customers. But what do they do? Are they similar in service? While they sound like they have similar functions, there's actually a difference between them.
What is an ACH payment?
An ACH is the process of electronic transfer of funds from one bank account to another. It's a kind of Electronic Funds Transfer (EFT) and it's also a network responsible for connecting all banks and financial institutions in America — making it more convenient, no matter what state or American bank you use. It can also be a single-entry or it can be recurring, so it's also used in paying bills, rent, and other monthly utilities.
Whenever you want to transfer funds from another account, it requires you to enter your own account and routing number. It's also used to post credits directly to accounts, like in payrolls for employees. And with a merchant ACH account, you can directly deduct the funds from the customer with their authorization. It's a more convenient way of paying and receiving payments without the use of physical checks. However, unlike other modes of payments like credit and debit cards, and e-Wallet, the ACH does not provide real-time authorization of funds.
ACH processing time requires 3-5 business days, and the ACH payment will be directly deposited to the payee's account. Banks actually prefer this process more than traditional paper checks. ACH billing can still come back as NSF or Non-Sufficient Funds even after the processing since it only checks if the account exists, and don't check the funds available for that account. However, you can also set your account up for ACH with check verification to make sure that it doesn't come back as NSF, but the processing fee will be more expensive than usual.
What is an eCheck payment?
An eCheck is a type of service that transfers money electronically, which mainly relies on the ACH network to receive and send funds. It deducts the funds directly from the payer's account and transferred through ACH to the payee's account without manually going to the bank. It generally requires 24 to 48 hours to verify and 3-5 business days for echeck processing to successfully transfer funds into the payee's account.
It's mainly a more convenient and digital version of the classic check, and can be transferred safely and without delay. Some paper checks can actually be converted into an eCheck for a more convenient transfer and to avoid losing the check overall.
To write an eCheck, you need to follow these steps:
It can be done online wherein the payee sends you a digital payment form. Type in the account number and the routing number, then click submit. After clicking submit, you're authorizing the payee to deduct funds from your account and transfer it to theirs.
The other option is for the payee to call you through a recorded line for your account number and routing number, and they manually type it in the online payment terminal. By clicking ‘Process’, you are authorizing the payee to deduct money from your account and have it sent to theirs.
The merchant needs to have an ACH merchant account in order to deduct the funds automatically from your account to theirs. Bear in mind that there are charges in processing an eCheck, and the average fee is around $0.30 to $1.50 per transaction. However, there are different fees for different providers, so make sure you look for one that works with your business and your budget.
What is the difference between ACH and eCheck?
They're actually so similar that people use them interchangeably, but the thing is, there are important details that differentiate the two. The difference starts when the party retains the information and sends the payments. For other ACH processes, it's usually managed by specific entities that is required and authorized by the banking information sent.
While similar in functionality, they show different kinds of transactions based on the kind of business you run. There are different sets of risk management, and they also have different information flows. There are different legalities used in handling them, and they have different transaction types as well.
Which is faster?
ACH is definitely faster, as eChecks need 24-48 hours for verification and eventually processed within 3-5 business days, while ACH is immediately processed within 3-5 business days. There are providers that have different time frames, but so far, this is the most common time frame needed to process the payment.
How secure is ACH and eCheck?
ACH is relatively safer than credit cards since you only need to show your information once when you sign up for monthly billing, and it's definitely safer than written checks. Unlike hand-written checks, ACH safely delivers the funds and information to you without delay and without losing it on the way to the bank.
On top of that, you're protected by federal law if ever there are ACH related errors and problems during the process. It has to be done within 60 days and report it to the bank within that time frame to avoid further problems. It's easier to reverse actions here compared to wiring it as it's not immediate and it takes days to process the request.
eCheck is safe as well, and definitely safer than written checks. Not only does it eliminate the tedious process of classic checks, but it's faster to process, too. Since traditional paper checks need to be mailed and processed, eChecks can move the money faster as it only takes 24-48 hours to verify, then 3-5 business days to process.
It's also safer in that there is no physical cash involved, and usually, checks have huge amounts of money being moved. It will definitely lessen the possibility of getting robbed, or avoiding instances of fraud, while the money is being transferring to your account.