ACH, Paper Checks, eChecks, Electronic Payments? Confused Yet?
The terms “ACH” and “eChecks” are mentioned quite a bit in electronic payment circles. They have lead to some confusion in what they really mean. Is there a difference between ACH and eChecks OR are they the same thing? Let’s clear up the confusion.
What is ACH?
ACH is an acronym for Automated Clearing House. It is an electronic network or clearing house for clearing financial payments and payment related information. It moves money from one bank account to another through ACH Transactions like:
- Direct Deposit for payroll, government benefits, tax refunds etc…
- Direct Payments for ACH Credit and Debit payments
- Recurring or One time payments
- B2B or B2C transactions
- National as well as International payments
ACH processing can also be called EFT or Electronic Funds Transfer as that’s what it boils down to.
According to NACHA, the Electronic Payments Association, the ACH Network is “…one of the largest, safest and most reliable payment systems in the world…”, and “Each year it moves more than $40 trillion and nearly 23 billion electronic financial transactions…”.
Transactions that go through the ACH Network are processed in batches as banks and financial institutions gather transactions from their customers during the day. ACH Credits settle in about 2 to 3 business days and ACH Debits settle 3 to 4 business days. Funding times do happen quicker but that only comes when an ACH originator/processor provides quicker funding and actually loans the money until it settles officially. Rules and Compliancy for the ACH network are established by NACHA and the Federal Reserve.
NACHA recently proposed a rule change that will significantly speed up electronic payments with Same Day ACH Rolling Out in Phases Starting 2016.
What is eCheck?
eCheck is an abbreviated term for electronic check and that’s what it basically is. It’s a check in its electronic form. A paper check takes some time to go through the payment process whereas an eCheck is much faster. eCheck is a form of payment and ACH is the payment process that the eCheck goes through.
So, eCheck and ACH processing can be used interchangeably as they mean the same thing.
Anytime you have to give out your bank account and routing numbers, you are basically making an eCheck or ACH payment. For example, you may have filled in your banking information on an ACH Debit Form when you signed your rent agreement . Your banking information was then input into your landlord’s ACH processing platform. Your monthly rent payment is now automatically debited out of your account on a monthly basis instead of you having to mail out checks every month. That payment can be called an eCheck or ACH payment.
Paper Checks Converted to eChecks.
It is very common now to convert paper checks to eChecks. When we pay a bill and mail out a paper check, the recipient (if receiving many checks) converts paper checks to eChecks and submits them electronically to be processed as ACH transactions. It does make the transaction safer and saves businesses a lot of time from manually handling the payments and formally depositing them in their bank.
Where paper checks took about 7 to 10 days to process, eChecks only take about 3-4 days. Larger business use check scanners/readers and scan the checks into their payment processing software and transmit the data securely to their banks or merchant account providers. The faster speed that the eCheck provides makes it easier for businesses to do more business. It also makes it easier for consumers as they see their check go through faster and can balance their accounts accordingly.
ACH and eChecks are the vehicle for payments to travel faster and enable businesses and consumers to transact more securely and safely. As technology advaces, so too does payment tech, and faster payments just mean more business gets done and at a lower cost.
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