You may have noticed that we discuss both ACH and eCheck processing and payments around here. It’s all over our blog and website. ACH. eCheck. Electronic checks. What’s the difference, exactly?
Let’s jump in.
There actually isn’t much of a difference between the two. In fact, you can use the terms interchangeably and be pretty safe in the industry.
ACH stands for the Automated Clearing House and is basically the process of moving funds electronically between bank accounts. ACH processing can also be called EFT (electronic funds transfer), not to confuse you further. To learn more about ACH/EFT processing, read our Payments Basic post here.
Now, an eCheck (which is just the abbreviated term for electronic check), is pretty much the same thing. Technically, you might consider the actual eCheck the payment itself, rather than the process. So the term eCheck might really be more synonymous with the term “ACH payment,” to be most accurate. Think of the eCheck as the electronic check payment that replaces what used to be the paper check.
Let’s make this a real-life scenario, shall we?
With ACH processing, you use your bank account information to process payments. It can also signify a credit to an account (like a payroll direct deposit, for example). There’s no rule you always have to pay someone money out of the account. Money can also go into a bank account.
This might happen when you pay, let’s say, your rent online. A lot of us do this nowadays because it’s infinitely more convenient than trying to cram that check into that tiny slot in the middle of the night. So you go to your desktop and log on to your property management company’s website. You get to the payment area, and what are you prompted to do? Enter your routing and account number.
Anytime you’re asked to enter these numbers for an electronic payment, you’re about to make an ACH or eCheck payment.
Another way people make eChecks? Many times, when we pay bills and submit paper checks, they are actually converted to electronic checks and submitted and processed as ACH. On occasion, you might see this in a store as a sign on the cashier counter or hung up behind it. The sign informs you that your paper check will be converted to an ACH or electronic check and processed accordingly. Businesses are required to tell you when they convert paper checks to electronic ones.
What’s the point of converting paper checks?
Well, back when people used to write and accept paper checks without shame or abandon, this practice would require most businesses to store up all of these checks and deposit them at their bank for processing. Of course, the processing of paper checks used to be a much different process than it is now, as well. This was, generally speaking, a hassle.
With ACH/eCheck, businesses can simply convert their paper checks to eChecks right in their own back office by entering the numbers themselves. Or they can transform them into electronic checks by using a check reader, which is a pretty smooth way of doing it. Either way, the bank account information is entered and the ACH/eCheck payments are submitted electronically to the merchant bank and forwarded to Federal Reserve. (Need a breakdown of ACH flow? Check out this: Forte-ACH-Transaction-Flow) As electronic payments now, or ACH/eCheck payments, these checks can be processed in about four days – instead of the roughly seven to ten it used to take paper checks.
Now that’s good for business.
That was a bit of a tangent, but hopefully it didn’t take us too far off of the path. Now you know a little bit more about what they are and why we use them. Furthermore, you can go about freely using the terms ACH and eCheck pretty much synonymously. They refer to essentially the same thing.
But what about the check number, if you convert the check electronically? If you are only processing the routing and account numbers, when the payer goes to reconcile their bank account in a month, the check itself will not be there….furthermore it could potentially be cashed, since the check number was never processed.
Checkreaders today take an image of the check. In addition checkreaders stamp the check showing it was electronically processed. This way the check can’t be used again.
Thanks for sharing this article. This article is very helpful for me to understand the difference between ACH and eChecks. This is a very useful post and very easy to understand.