How are Echecks Processed?
There are 2 ways echecks are processed. It’s important to know what you are getting to make the correct choice to protect your business.
Echecks Clear through the Payment Processor’s Account
- Option of choice for high risk merchants. For businesses that need greater flexibility on returns & chargebacks. Echeck processors allow significantly higher chargeback & return ratios than ACH or card processors
- All transactions clear through the processor’s account. Cleared funds are deposited to your business bank account. (Similar to the way credit card processing works)
- True end-to-end electronic processing, clearing & settlement. The processor assumes the responsibility for chargebacks & returns.
- Because the only transaction your bank sees is an ACH credit for the settlement of cleared funds, your business bank operating account is protected.
Echecks Clear through Your Business Bank Account
An echeck company creates “substitute” checks and sends them to your business bank (via scanning, courier, mail, or overnight delivery) to clear. Returns and chargebacks reflect in your business bank account and are your responsibility.
- Recommended only for low risk merchants that have few returned transactions (such as NSF) or chargebacks (consumer disputes the transaction).
- Some banks will not honor substitute checks and automatically reject the transactions, increasing your returns & chargebacks and negatively impacting your cash flow.
- Returns and chargebacks within a business bank account raises red flags and can result in the closure of your business operating account.