An electronic check, or eCheck, is an electronic version of a paper check. Instead of writing out a check and handing (or mailing) it to the recipient, you enter your banking information and the payment amount online and authorize a transfer of funds from your bank account to the payee’s bank account.
Electronic checks are a fast, safe, and convenient form of payment, but they do have a few downsides. Here’s what you need to know.
What Is an Electronic Check (eCheck)?
An electronic check, or eCheck, is an electronic money transfer designed to perform the same function as a traditional paper check. You can often use an eCheck to pay bills, shop on an online marketplace, or make other types of payments.
To issue an eCheck, you need to provide your bank account number, bank’s routing number, and payment amount, then authorize the transaction by accepting a website’s terms and conditions. The eCheck is then processed by the Automated Clearing House (ACH), a secure system that facilitates electronic payments and money transfers between banks. Once authorized, the funds leave your checking account and get deposited into the payee’s checking account.
Since an eCheck is in an electronic format, it can be processed in fewer days than a traditional paper check. Electronic checks also generally have more security features than standard checks, including authentication, digital signatures, and encryption.
How Does an eCheck Work?
The process of paying by eCheck involves three basic steps:
• Authorization: First, you need to fill out your eCheck through an online payment portal. You then click “Submit,” which authorizes the payee to withdraw the payment amount from your checking account. In some cases, you can provide your banking information and authorize an eCheck over the phone.
• Processing: The business’s payment processor receives the eCheck and sends a payment request to the ACH network. The ACH network confirms that the funds are available in your account.
• Settlement: Once the transaction is verified and approved by the ACH network, the funds are transferred from your account to the payee’s account.
How Long Does an eCheck Take to Clear?
The time it takes for an eCheck to clear can vary, but it generally takes between three to five business days. The reason for the delay is the ACH network processes payments in batches, not one by one. Once they start processing the eCheck, the network has to verify your bank information and perform security checks, which can take a few days.
Also keep in mind that eChecks aren’t processed on weekends and holidays. So if a you send an eCheck on a Friday, the payee may not receive the funds until the middle or end of the following week
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Advantages and Disadvantages of eChecks
EChecks have a number of advantages, but also a few drawbacks. Here are some things to keep in mind.
Advantages
• Cost-effective: Electronic checks are often more cost-effective than paper checks, since you don’t need to pay for paper checks or stamps. And unlike using a credit card (which may come with a surcharge), eChecks generally don’t trigger a processing fee.
• Convenience: Electronic checks eliminate the need for physical checks, reducing the time and effort required for writing, mailing, and processing paper checks. They can be easily initiated and authorized online or over the phone.
• Security: Electronic checks offer enhanced security features, such as encryption and authentication, to protect sensitive financial information. This reduces the risk of fraud and unauthorized transactions.
• Environmentally friendly: By reducing the need for paper checks, eChecks contribute to environmental sustainability by minimizing paper waste and the resources required for printing and mailing.
Disadvantages
• Clearing time: Electronic checks can take several days to clear, which may be longer than other electronic payment methods. This can be a drawback for those who require immediate access to funds.
• Possibility for errors: While eChecks reduce the risk of errors compared to paper checks, there is still a possibility of making a mistake in entering your bank account information or routing numbers. Such errors can delay the transaction process.
• Limited acceptance: Not all businesses or individuals accept eChecks as a form of payment. This can limit the usability of eChecks in certain situations.
• Potential for fraud: As with any electronic payment method, eCheck payment may be subject to fraud or unauthorized transactions. You want to be sure to share your bank account information only with trusted merchants.
What’s the Difference Between ACH and eChecks?
The terms ACH and eCheck are often used interchangeably, but they refer to different aspects of the electronic payment process.
ACH (Automated Clearing House): ACH is a network and system used for processing a wide range of electronic payments, including electronic checks. The network facilitates the transfer of funds between banks and ensures the secure processing of transactions.
Electronic check: An eCheck is a specific type of payment that is processed through the ACH network. It is an electronic version of a traditional check and involves the transfer of funds from one bank account to another.
In short, the ACH network is the infrastructure that enables various types of electronic payments, including eChecks. An eCheck is a type of transaction that utilizes the ACH network for processing.
Is Paying by eCheck Safe?
Yes, paying by eCheck is generally considered safe, thanks to several security measures that are in place. Most notably, eChecks use encryption to protect your sensitive financial information during transmission. This ensures that the data is secure and cannot be intercepted by unauthorized parties. Electronic checks also require timestamped digital signatures to help prevent fraud.
Recommended: Are Mobile Payment Apps Safe?
The Takeaway
Electronic checks are essentially the digital version of traditional paper checks. These checks are facilitated by the Automated Clearing House (ACH) network, an electronic network used by U.S. financial institutions. Funds are electronically withdrawn from the payer’s checking account, transferred over the ACH network, and deposited into the recipient’s checking account.
Electronic checks are a safer alternative than paper checks, and also faster to clear and cheaper to issue. However, eChecks take longer to process than paying with a debit or credit card and they aren’t accepted everywhere.
FAQ
How do I pay with an eCheck?
The process of paying with an eCheck mirrors that of writing a traditional check, but in a digital format. If the business you’re paying accepts eChecks, you simply need to enter your bank account number, bank’s routing number, and the payment amount on a secure online payment portal. You then authorize and submit the eCheck.
Does it cost money to send an eCheck?
Not typically. Merchants generally have to pay a small processing fee for accepting eChecks but this cost is not usually passed on to the consumer.
Can you reverse an eCheck?
Yes, but you have to act quickly. To reverse an eCheck, you generally want to notify your bank as soon as you know you need the payment halted, ideally within the same day. Once the payment clears, your bank may not be able to reverse the process.
About the author
Jacqueline DeMarco
Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.
Photo credit: iStock/kazuma seki
SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
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