Electronic Check Processing

Known also as e-checks, electronic checks are a very useful, if underutilized, payment processing method. They allow merchants to offer their website's customers the option of paying for their purchases by check, instead of credit card.

E-checks work in a similar fashion to paper checks, except they are processed electronically and can clear faster. As with paper checks, customers use funds from their checking or savings account when paying via electronic check.

There are several benefits to offering payments by e-checks on your website:

• Increase your customer base. Statistics show that only about one-half of adults have a credit card (and that half of those have already "maxed -out" to their credit limit). A much greater percentage of potential customers have checking accounts. Research also indicates that almost one-third of consumers would prefer to pay with checks. Any shopper with a U.S. checking or savings account can purchase your website's goods and services using an electronic check.
• Lower your processing fees. Rates are often a mere 25% to 50% of those associated with credit card processing. There may be upfront software acquisition costs however.
• Eliminate chargebacks. Unlike credit cards, there is no risk of having a heavy chargeback history jeopardize your merchant account.
• Funds can be deposited to the bank of your choice. Usually this can include an interest-bearing account.
• E-checks often do not have monthly fees or minimums associated with them.
• Single and recurring payments can be authorized by your customers.

Typically, the process involved in accepting checks via your website is as follows.

Your customer inputs their checking account details into an online form on your website, which often is displayed in the form of a regular paper check Their data is then securely transmitted through your e-check processing system and 'presented' to his or her bank for settlement (usually the following business day).

Assuming the funds are available, the customer's account is then debited for the amount of the transaction. Thereafter the funds are credited to the bank account of your choice.

Please note that there may be a waiting period of from 3 to 7 days (depending on the processing system used), while the bank ensures that the charge is not reversed. Reversals can occur due to insufficient funds, an invalid account or routing number, or a closed or frozen account.

So while your account may be credited with the funds within a day or two of the transaction, it is widely recommended that merchants who use e-check processing wait at least 5 days before shipping the goods ordered, as this allows 2 days in which to debit the account of your consumer, 2 days in which to deposit the resulting funds to the bank account of your business, and another day for transaction to be posted. Otherwise you may find that you have shipped the products, but that the funds are reversed out of your account after shipping. And if you happen to sell digital downloadable products or software from your website, e-checks may not be a good payment alternative.

There are also a number of additional electronic check services that you may wish to consider:

• Check Guarantee Service, which can virtually eliminate your risks of accepting checks, by verifying each check before accepting it.
• Electronic Phone Checks Service, which permits you to accept a customer's check over the phone or fax.
• Point-of-Sale Check Conversion, that enables retailers to process any check payment received in person (POS) electronically, through a check reader or manually on a terminal keypad.
• Check Verification Service, which helps reduce your exposure to NSF checks.

Also, please note that almost all providers of internet merchant accounts also offer electronic check services to their customers, so you may wish to incorporate e-checks into your processing requirements when setting up your merchant account.