Electronic Check Processing

How businesses can save time and money by processing checks electronically from a computer instead of going to the bank.

What is Electronic Check Processing?

Electronic check processing means that you can convert a paper check received from a customer into an electronic transfer (sometimes called an e-check) that takes funds from your customer's account and places them into your business's bank account. (You may have seen transactions of this type on your checking statement.) This transfer takes place via the Federal Reserve Bank’s Automated Clearing House (ACH) system. It's a faster, less-expensive way to get your money.

What is the ACH Network?

Put very simply, the ACH network moves money from one entity to another--electronically. The Automated Clearing House (ACH) Network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system which provide for the interbank clearing of electronic payments for participating depository financial institutions. The Federal Reserve and Electronic Payments Network act as ACH Operators, central clearing facilities through which financial institutions transmit or receive ACH entries. The process is governed by NACHA, The National Automated Clearing House Association (nacha.org), operating rules and business processes.

ACH Transaction Types:

  • Direct Deposit of payroll, Social Security and other government benefits, and tax refunds
  • Direct Payment of consumer bills such as loans, utility bills and insurance premiums
  • Business-to-business payments
  • Electronic Checks (E-checks)
  • E-commerce payments
  • Federal, state and local tax payments.

 If you're getting your paychecks directly deposited into your bank account, you're already using the ACH network. You can leverage this system for your business so that you never need to go to the bank again—you can process checks electronically from your computer.


Understading The Electronic Check Processing System


Electronic check processing is the means by which you can take a paper check and submit it for payment electronically instead of taking it to the bank. Your bank may offer you this capability if you purchase a check scanner from them. The scanner takes an image of the check and submits that image to the bank electronically. The bank then processes that check just as if you had handed over the physical check itself.

An easier way to process checks electronically is to use a software program or a web-based payment processing service. When using a web-based system or ASP, you don't need to install any software or buy any hardware. You simply key in check information and submit the transaction.

Whenever people switch to a new technology, it is very important that they feel comfortable with the technology. When this new system involves money-it becomes even more important for both the business itself and its customers.

Implementing Electronic Check Processing in Your Business


Implementing electronic check processing involves choosing a processor and changing your businesses processes to conform to rules for electronic check processing:

1. Notify: You must notify your customers that their paper checks will be processed electronically. You can do this in writing on your invoices, or by posting a sign at your place of business.

2. Collect and Convert: The paper check is converted to a one-time ACH-based electronic payment, with the customer's bank routing number and account number captured. You then make a copy of the check for your file, stamp the original check "VOID" and discard it.

3. Process: An ACH file for the check is created and presented to your bank-this is typically done by the payment processing company; the payments are processed through the ACH network, the customer's account is debited, and your account is credited. The payment is documented on a customer's bank statement with the check number, amount, and the billing company name