An electronic check is an electronic payment funded by the buyer’s bank account. Electronic checks use information found on the buyer’s check to carry out an electronic funds transfer. They can thus be processed through the ACH (Automated Clearing House) system.
Electronic checks are processed similarly to paper checks and are governed by the same laws but offer greater security and more features, such as authentication and digital signatures. They are typically processed much more rapidly than paper checks.
Electronic checks are created through a simple process. Typically, the merchant’s employees runs the customer’s paper check through an electronic scanner system supplied by the merchant’s service provider. This virtual terminal captures the customer’s banking information and the payment amount. The information is then transferred electronically over the ACH system, which takes the funds from the customer’s account and deposits them into the merchant’s account. After the electronic check is approved, the virtual terminal will print a receipt for the customer to sign and keep. Then the merchant’s employee voids the paper check and returns it to the customer.
For a merchant, electronic checks have many advantages over paper checks. Since electronic checks require that the account holder’s money actually be in the account at the time the check is issued, the number of bad checks is drastically reduced. Electronic checks are also much cheaper to process, since there are no printing, mailing or handling costs. They thus save businesses the costs of hiring employees to process checks. Furthermore, since many businesses can accept electronic checks over the phone, it is easier for customers to make payments on time. This benefits both the customer and the business. The deposit of electronic checks is also much more secure for merchants than paper checks, since there is no need to be concerned about lost or stolen checks.