In the age of digital payments, who uses paper checks anymore? It’s a valid question, especially for small-to-medium sized businesses (SMBs) to consider when choosing the types of payments to accept now and in the future.
Here are a few facts: credit card payments continue to grow, and the 2018 Federal Reserve Payments Study reported that large-institution check payments declined at an accelerated rate of 4.8% from 2016 to 2017, while ACH payments exhibited accelerated growth, from 5.7% to 6.9% during the same time frame.
Hmm. Credit card growth seems explainable. But what’s driving the shift from check payment processing to ACH processing? The answer is the electronic check.
What is an electronic check and how does it work?
Also called eChecks, electronic checks are the digital equivalent of a paper check. As a business owner, if you want to accept eChecks, you need the information that’s on a customer’s paper check in order to set up electric payment processing services. The eCheck transaction is processed via the Automated Clearing House (ACH) electronic network, versus credit card networks, such as Visa and Mastercard.
Your business needs to initiate the process, by requesting your customer’s bank routing number and checking account number to set up the ACH direct deposit. Both numbers will be found on a paper check. Note: a sequential check number is not needed to set up electronic check payments.
The routing number acts as a physical address to the bank where the customer has an account, and the checking account number correlates to the customer’s specific account. With this information, your bank can communicate directly with your customer’s bank and, with the assistance of a payment processor, the funds are transferred directly from one account to the other. In this case, from customer account into business account.
It takes 1-2 days for eCheck funds to clear––and this seems to be the only downfall to electronic payments. While credit cards and debit cards transfer funds in real time, eCheck funds must first be verified in the account before the transaction takes place.
What are the benefits of electronic checks?
There are a number of benefits to eChecks, and it could be why ACH processing has been growing annually since 2012.
1. Cost savings
First and foremost, ACH eliminates the need for costly credit card networks. In place of high card network exchange rates based on a percentage of the dollar amount transacted, are lower flat fees, with no transaction amount limit. If your business regularly accepts large payments, consider the cost savings with ACH over a credit card.
Because ACH is an electronic process, the funds are transferred faster and more conveniently than paper checks. Who has time to go to the bank and make deposits?
3. Recurring payments
If you have a subscription-based business, eCheck payments are the perfect solution. Here’s why:
- You can set up autopay with customers without worrying that their credit card number might change. Bank account information rarely changes, while credit card numbers change frequently. ACH payment processing services help prevent lost customers and payment gaps.
- Monthly fees add up over time, and a business can save enormous sums on a long-term subscription. Electronic payments eliminate network exchange fees.
- It’s easy to initiate electronic check payments online. Create a simple, secure form page for your customers to complete. It only takes a minute to set up autopay, and because they don’t have to write paper checks, it saves lots of time down the road.
- Since your business will be saving money with an ACH direct payment, you can create an incentive for your customers to sign up. Offer them a small financial reward, and in the long run, you’ll likely lower your own costs dramatically.
9 business types that should consider electronic checks.
The payment processing services you use depends on the type of business you run. Here are nine types of businesses that could benefit from eCheck payments.
- Subscription-based online businesses
- Membership businesses that require monthly fees, such as gyms and yoga studios
- Rental businesses, such as real estate management companies, and companies that rent furniture, appliances, or equipment
- Businesses that accept large sum payments, even single payments
- Nonprofit organizations that accepting monthly or annual donations
- Schools that require tuition payments
- Insurance companies that utilize recurring payments, such as pet insurance
- B2B businesses that often receive large payments
- Established, growing businesses that want to offer more ways for their customers to pay and reduce their own costs at the same time
How to get started with electronic check payments.
Businesses that are already somewhat established most readily benefit from eCheck payments. The best place to begin is by asking your current payment processor if they offer ACH payment processing. If not, it’s time to seek out another payment processor. You may want to ask your business bank for a referral.
In addition, it’s convenient for customers if you set up an electronic check form page on your website, from which you can initiate the request for customer bank information, including routing number and checking account number. Get your payment processor and developer involved to be certain your page is secure. You want to make sure your customers feel comfortable giving you this information online.
So, are you primed and ready to start? Once you get eCheck processing set up for your customers, you can start to reap the rewards of savings and efficiency. And your customers––especially those who are paying monthly––will benefit from convenience.