How to Work with Online Checks: A Guide

The world of e-commerce provides businesses and customers alike with many new and exciting opportunities in which to buy and sell products and services. Customers now have more ways in which to pay than ever before, and it is incumbent upon businesses to provide ways in which to accept these payments if those businesses wish to maximize the number of sales.

Online checks are one such method, bridging the gap between traditional checks and instant transactions. Below, you’ll find the a guide to work with online checks as an online merchant or as a customer.

The Process of Online Checks

Online checks work as a form of online payment, where the money is withdrawn from the customer’s bank account electronically, transferred through the ACH network and deposited into the payee’s account.

Payments can be done on a one-time basis or in a recurring fashion; for recurring payments, a business must have an ACH merchant account and the customer must authorize the recurring payment via a formal agreement on the website or via recorded conversation.

A business will request authorization from the customer for the transaction, the customer or business will setup the payment details, the process is then initiated and the funds are withdrawn. In a few business days, the funds are deposited in the payee’s account.

How Businesses Often Handle Online Check Transactions

Despite the fact that online check payment services may resemble that of debit or credit card transactions to a degree, the process of transferring funds is not instantaneous for the business. The money is withdrawn immediately from the customer’s account, but it will take some time for the business to receive it.

In the meantime, the business usually maintains the order in a pending status, in which the items or services purchased are held until payment clears (in the case of digital subscription services, immediate access to the customer may be provided). When the online check clears and the buyer has the funds, the product or service is shipped or provided.

Methods, Costs and Good Habits of Online Check Use

There are two common ways in which an online check transaction occurs. The first and most common method is through the use of a payment form. The payment form may be emailed to or accessed directly by the customer. The information is then submitted by the customer. The second method requires the customer to call the business and initiate the payment via phone conversation.

The cost of an online check can vary for the business depending on the exact merchant agreement. Online check fees usually consist of two components: a per transaction fee and a fee based on the value of the online check. This combined fee can range between a quarter and a couple of dollars.

Customers who pay via online checks are recommended to keep track of their checks via paper records.

Examples of Online Check Transactions

Many people who pay for a variety of products and services online probably already use online checks without even knowing it. There are many uses for online checks. One common example is online check payments through PayPal. PayPal, which is used by more than one hundred people globally, uses an online check interface to pay for products whenever there is no balance in the PayPal account directly.

Any instance in which bank account information (account number and routing number) is provided and used to make a payment results in an online check transaction. Countless people use online bill pay services through their banks – this service uses online check solutions through the ACH system in the vast majority of cases.

Additionally, virtually all physical checks that are written – like the personal and business checks are processed in brick and mortar retail outlets are now processed electronically. The check is scanned through a machine, the routing and account numbers are read, and the physical check can be disposed of in a secure manner afterward.

How Online Checks Move Money

Online checks utilize the ACH system to process payments, as mentioned prior. The ACH system is widely recognized and endorsed by major financial institutions. Buyers provide their bank routing and checking account numbers electronically in order to initiate the payment through a merchant system. Immediately, the money is deducted from the buyer’s bank account and moves through the ACH system. After a couple of days, the two banks verify that the funds were actually available in the buyer’s checking account, and the payment is finalized and deposited into the merchant’s account.

Benefits of Using Online Checks

From a shopper or customer standpoint, what are the benefits of using online checks? As it turns out, there are many:

• Easily setup recurring payments. Many services and subscriptions that rely upon recurring payments on a monthly or quarterly basis utilize online check solutions in order to save money and time. Having your checking account information on-hand and ready for online check usage will ensure you can set these payments up anywhere.
• Avoid canceled recurring billing. While recurring payments can be setup with debit and credit cards, it is highly likely that you receive a new card every two to three years. When your old card expires, any and all recurring payments will have to be setup once again in order to maintain services and subscriptions. With online checks, your recurring payments will continue indefinitely since they are linked to your checking account credentials, which do not change.
• Enjoy increased security. Because online checks deal with a direct bank to bank transfers, there is added peace of mind and security features included in them. Banks also provide additional guarantees to protect you against fraud. Online checks use a variety of security mechanisms, including encryption, authentication, digital signatures and/or cryptography. Even when information is compromised, banks use layers of information and security that will often catch potential fraud and prevent the payments from occurring.

What experiences have you had with online checks? How often do you use online checks to pay bills or buy goods? Share your stories with us below.