eChecks vs ACH: What’s the Difference?

2 April, 2024
10 mins
Vipul Taneja, VP, Finance Transformation

Table of Content

Key Takeaways
Introduction
What are eChecks?
How Does eCheck Payment Processing Work?
What are ACH payments?
How Do ACH Check Payments Work?
Differences: eChecks vs ACH Payments
What is the right payment method for your business?
How HighRadius Can Help
FAQs

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Key Takeaways

  • With eChecks, funds are electronically withdrawn from the payer’s checking account and sent via the ACH network and deposited into the payee’s checking account.
  • An ACH is a type of transaction that enables merchants to send and receive payments electronically over the proprietary ACH network. 
  • Unlike eChecks, which are one-time payments, ACH payments are widely utilized for recurring payments, direct deposits, and big transactions.
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Introduction

You might have heard people use the terms like eChecks and ACH when it comes to payments, and wondered what’s the difference between them.

In both eChecks and ACH payments, funds are transferred from one bank account to another. Though both serve the same function, there are a few differences between eChecks and ACH. And knowing the differences between them can help you make a better decision about which payment method works better in different scenarios.

In this article, we will discuss both the payment methods and also guide you on how to make the right choice for your business.

What are eChecks?

eChecks or electronic checks are a form of payment where an individual initiates a transaction from one bank account to another via a digital version of a paper check. An eCheck payment is a one-time transaction that cannot be rolled back.7

An advantage of eCheck payment processing is that it can be processed much faster than physical checks. Though you’re using the same account number and the bank’s routing system, processing eChecks is more efficient and quicker than physical checks.

Recommended Reading: Types of Check Payment Processing Options

How Does eCheck Payment Processing Work?

There are four main steps in eCheck payment processing. Let’s understand each of them below:

  • Authorizing Requests:

    The customer needs to send an authorization request before initiating the payment to the merchant. This process can be completed through several mediums such as an online form, direct phone conversation, or signed order form.

  • Setting up Payment Gateways:

    After the authorization process is completed from both ends, you can now enter the payment gateway to initiate the process.

  • Submitting Details:

    After all the information such as the account number, federal tax ID number, business name, and address is submitted correctly, you can complete the eCheck transaction process.

  • Confirming Payments:

    The funds will be withdrawn automatically from the account of the customer after the transaction is initiated and will be deposited into the account of the merchant. It typically takes around 3 to 5 business days to reflect the transaction details in the account statement.

eCheck payment processing time varies depending on a number of factors, including the issuing bank’s policies and the manner of transmission. eCheck payment processing time typically ranges from 3 to 5 business days, however this time frame can be extended if there are any complications with the transaction, such as insufficient funds or anomalies in account information. However, advances in eCheck payment processing systems have resulted in shorter processing times in some circumstances, with some banks providing accelerated clearing alternatives for eChecks. Despite potential delays, eChecks remain a convenient and cost-effective payment mechanism that is a viable alternative to traditional paper checks.

To Note: Merchants will have to pay a nominal transaction fee in order to process eCheck payments.

What are ACH payments?

ACH stands for Automated Clearing House, which is a form of transaction that allows merchants to send and receive payments electronically via the proprietary ACH network. The two types of ACH payments are ACH credit and ACH debit. Users mostly use this kind of processing for regular bills and utility payments.

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The transaction speed and cost may vary for credit and debit types of ACH payments. Mostly, it takes around 1-2 business days to complete a transaction.

ACH payments are ideal for merchants who work on a subscription-type business model where they collect recurring fees from their customers. Such automatic payment deductions are categorized under ACH debits.

In the next section, we’ll look l at how the ACH check payment process works.

How Do ACH Check Payments Work?

An ACH payment gets completed in 3 steps. Here’s how:

  • Authorization request

    The customer grants written or verbal authorization to the merchant for processing the payment.

  • Conversion of check into ACH

    A payment gateway is used to convert the check into an ACH transaction. After this step is completed, the transaction goes to the merchant’s payment processor.

  • Transfer of payment

    After the conversion is completed, the merchant’s check processor sends the ACH check transaction into the customer’s bank account. Once it is validated, the funds can be taken out from the checking account.

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Recommended Reading: Achieving 100% Straight-Through ACH Cash Posting

Differences: eChecks vs ACH Payments

ACH is an electronic network that helps transfer money between bank accounts in the US. While both payments use the ACH network, the rate at which they are processed can vary. eChecks use ACH to debit funds from customer accounts to merchant accounts, and have some differences. The below table captures the differences between eCheck and ACH payments:

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Similarities: Electronic Check vs ACH Payments

As we have highlighted the differences, the similarities will have become evident on their own. While they have distinct operational mechanisms, they share several similarities that make them popular choices for individuals, businesses, and institutions alike. Both ACH and eChecks facilitate electronic fund transfers initiated by authorized parties, typically taking 1-2 business days for funds to clear. Moreover, they offer cost-effective transaction processing, often with low or no fees involved. Let’s further explore their shared characteristics and benefits in modern financial transactions.

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What is the right payment method for your business?

eChecks are a type of ACH payment that mimics the format of traditional checks and supports the latest data processing and security features. You can opt for either eChecks or ACH to receive payments if you are a subscription-based business. Using eChecks or ACH instead of paper checks reduces the overall operational hassle and is environment-friendly. Your customers won’t have to submit paper checks every month and rather can set up automatic deductions from their bank account. ACH payments are preferred for large transactions, recurring payments, and direct deposits.
When it comes to ACH payments, customer experience is also an added bonus. With all the ease and comfort that the customer gets from automatic payments, they won’t feel the need to go back to traditional payment methods again.

In other words, if you want to pick between ACH and eChecks for your business, keep in mind that both come with similar benefits, low cost, speed, and security.

How HighRadius Can Help

Transitioning from traditional paper checks to eChecks payments represents a pivotal moment for businesses seeking efficiency, security, and cost savings in their financial operations. HighRadius emerges as a pivotal ally in this transformative journey, offering a suite of cutting-edge solutions tailored to streamline and optimize the eChecks payment process. Moreover, the robust security measures embedded within HighRadius’ eChecks Solutions safeguard sensitive financial information, mitigating the risks associated with fraud and unauthorized access. With HighRadius as a trusted partner, businesses can confidently embrace the benefits of eChecks and thrive in the digital era of finance.

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FAQs


1) What is an eCheck payment?

An electronic check, or e-check, is a type of payment sent over the Internet or another data network that serves the same purpose as a traditional paper check. Because the check is in electronic format, it may be processed with fewer steps.

2) How long does an eCheck take to clear?

In most cases, the funds are verified within 2 business days after the transaction has been processed, and are typically cleared within 5 business days.

3) What’s the difference between eCheck and ACH?

eChecks and ACH are commonly used interchangeably, however they have distinct characteristics. ACH transactions can take numerous forms, ranging from interest to payroll, whereas eChecks are exclusively electronic transactions between checking accounts.

4) What’s the difference between an eCheck and a standard check?

An eCheck is a payment method that includes the same information as a paper check (checking account number, bank routing number, and payment amount), but the entire transaction is handled online. In the United States, eChecks are processed via the Automated Clearing House (ACH) network.

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