eChecks work in exactly the same way as paper checks. The funds are drawn directly from the payer’s bank account, without the use of credit. That means that if the funds aren’t available in the account, and the payer does not have a credit agreement with the bank, the check will be returned to the payee without being honored. The main safety from fraud is in the eCheck itself.
In absolutely anything in life we are provided with plenty of scope for fraud — exactly the same scope, in fact, as accepting paper checks. If the check bounces, or if the payer stops the check after the product or service has been delivered, the business will find itself out of pocket.
This enables fraudsters to buy a product online and pay with an eCheck, knowing that they don’t have enough funds in the account to cover the cost. If the seller sends the product immediately, the buyer can stop the check and receive an item for free. If the seller waits, the check bounces and while the scam might not have worked, the seller won’t be out of pocket.
The ease of that scam has led some sellers to block receipt of eChecks but that’s not a great idea. Some payment platforms automatically authorize payments according to a list of priorities. First, they attempt to take funds from the buyer’s account on the platform. If the account lacks sufficient funds, they try to charge the user’s credit card. If the user hasn’t attached a credit card, they’ll issue an eCheck drawn on the user’s bank account.
So a seller might receive an eCheck simply because the buyer hasn’t moved enough money from their bank account to the payment platform and hasn’t entered their credit card number. Blocking eChecks would remove the chances of making a legitimate sale.
The solution to this problem is the same as the solution to the problem faced by businesses willing to accept paper checks: don’t deliver the product or service until the check has cleared. This still doesn’t remove the risk of a chargeback faced by every business, including those that take credit card payments, but it does reduce the chances that you’ll be left without payment. There are also many different forms of regtech that are available to companies today to combat this problem.
The need to wait for clearance is a golden rule for any business accepting checks but it does make business a great deal slower, and sellers should let customers know about the delay. Few customers have been known to thank their sellers for taking more time with their delivery, but they will be understanding if they’re informed of the reason.
Even here though, eChecks have a large advantage. A paper check can clear in as little as two days but the bank usually receives the funds from the paying institution within five business days… and that’s once you’ve paid the check into the bank. Because eChecks are transferred immediately and require less processing, the payment can sometimes clear in as little as 24 hours. When a customer is waiting to receive their product, that extra time shaved-off can make all the difference in their degree of satisfaction and the chances that this customer will pass the name of your business to a friend.
The lack of credit associated with eChecks can occasionally be an issue, but this time for buyers. Customers will need to make sure that the money is available in their account when they send the eCheck or risk not only delaying the transaction but also being blacklisted by other suppliers.
No payment method is entirely free of risk. For eChecks, those risks are still much lower than those faced by users of paper checks and also eCheck fraud and checks that bounce or are stopped is much lower. Most importantly is the fact that with eChecks, most cases of fraud issues are relatively easy to block.