Pros and cons of three ways of processing echecks. Discover which method is right for your business to accept echeck payments.
What are Echecks?
Echecks are the most popular alternative payment method for US shoppers. Millions of Americans regularly pay for goods and services with echecks rather than cards.
Echecks electronically debit funds from bank accounts. Funds are automatically settled to your business bank account.
The more payment methods you accept, the more sales you make. Echecks are a great way for you to get more orders from customers who don’t have cards, are maxed out on cards, or who simply prefer to pay you through a bank account, rather than with a card.
There are three ways echecks are processed. ACH echecks, deposit of checks to your business bank account, and echecks that clear through the processor. Below we examine the pros and cons of all three.
Echecks process through the ACH network, the oldest electronic funds transfer system in the US. The ACH network processes billions of transactions per year
The advantages of ACH echecks are:
- Lowest cost method of accepting payments online. For ecommerce, echeck rates are 50-80% lower than cards.
- Familiar and trusted. Most Americans pay household bills and receive direct deposit of wages through the ACH network.
- Same day ACH combined with advanced varication is an excellent payment option for merchants that need to quickly verify funds prior to shipping or fulfilling orders.
The disadvantages of ACH echecks are based on limitations required by NACHA.org, the governing body of the ACH network are:
- Revokes (aka “chargebacks”) need to remain under 0.5%. This is half the amount allowed by card brands.
- Returns must be no higher than 15%, including administrative returns.
- Many ACH processors do not accept high risk merchants.
Rates: 1.95% plus 0.50 per transaction Returns 4 Revokes 25 Monthly 25
Echecks Processed through Your Business Bank
The processor creates “substitute checks” and deposits the items in your business bank either electronically or depositing / overnighting the checks.
This is a good option only if you have extremely low revokes or returns.
The pros of clearing echecks through your bank account:
- The echecks are in your bank account same or next business day, giving you fast access to your money.
- Great for business-to-business transactions because there are seldom returns or chargebacks on business payments.
- Good option for low-risk industries with consumer transactions such as payment of household bills.
The cons of processing echecks through your bank account:
- Returns and revoked transactions can occur, particularly for business to consumer transactions. Returned and revoked transactions are expensive through a business bank.
- If your bank sees returns and revokes running through a business bank account, your account may be flagged. And you may lose your business operating account.
- Not all business banks accept substitute checks.
- For example, Wells Fargo, one of the largest banks in the US, does not accept substitute checks & payments from Wells Fargo accounts will “return to sender”
Rates: 2.95% plus 2.75 per transaction (includes advanced verification). Monthly 75
Echecks Through a Processor’s Account
This is the recommended option for high risk merchants. Echecks clear through the processor’s account. Cleared funds settle to your business banks account via an ACH credit, protecting your business operating account.
Advantages of clearing echecks through a processor’s account
- Highest ratios for revokes and returned transaction than any other payment method. High returns & revokes are no problem at all.
- Great for high-risk merchants. Once approved, no caps on volumes. Ten banks on the back end ensures processing continues uninterrupted.
- Super solution for industries that are prohibited or restricted by card and ACH processors.
Disadvantages of clearing echecks through a processor’s account:
- Settlement times are longer ACH because echecks can have “trailing returns” (many banks still process echeck returns manually). The processor needs to be sure all returns have come in prior to settling cleared funds. Friday settlements for the previous week’s transactions.
- Rates are higher because the processor assumes liability for returns, revokes.
Rates: 3.95-4.95% plus 2.75 per transaction (included advanced verification) Returns 15. Revokes 30. Monthly 99. Reserves 10% since the processor is assuming liability for all revokes and returns.
Echecks are more popular than ever before. If you do not offer echecks as a payment option, you risk losing business to your competitors that do. Accepting echecks is the fastest way to increase profits without additional work.
For more information, contact info@NationalACH today. Or call 866-ACH-7600 now.