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Written checks are not the most efficient for businesses to accept payment or consumers to purchase items these days. Checks are not as convenient for payroll and business supply purchases. ACH processing has taken the place of written checks. Businesses now use this transaction method to provide payroll to employees, pay bills, and accept customer payments. Customers pay with their routing and account numbers. Single or multiple payments may be created online or checks can be electronically filed at the time of purchase. Transactions are processed through a network of banks and financial institutions within the country. Electronic check transactions are handled in batches. Deposit transactions include payments for payroll or to vendors. Debits are payments made by consumers for things such as insurance premiums, utility bills, and monthly online subscriptions. Check conversion is another process included in electronic check processing. Consumers either write the check out or have it printed. It is sent in electronic form after being read and processed like any other electronic debit payment.

Processing an E-Check

E-check transactions can be processed a few ways. They may be in the form of online payment entry, retail purchasing, or direct deposit. The consumer or business authorizes an electronic debit or credit to be performed on their account. They are called the receiver and are the actual holder of the account. An authorization is issued by the originator. This is an individual or company. It may be the local electric company or an employer. A bank routing number is the identifier and is used in combination with the actual account number.

Consider this example. Jennifer decides to buy a pair of pants from a local retailer for twenty dollars. She is considered the receiver and the retail store function as the originator. Her bank account will receive a request to transfer the twenty dollars from her account to the originating business account. Jennifer paid by check but in electronic form. The check was scanned and sent as an electronic transaction at the time of the sale. A signed check provides the authorization needed for the transaction. It will be processed through the network and funding will transfer within three business days.

Financial institutions cannot perform an electronic check transfer until proof of authorization has been received. Written authorization can be a signed form, verbal authorization, or electronic. Electronic forms are very common and consist of a terms of agreement statement. The authorizer clicks a button or selects something to show they agree with the terms. Once received, the originator sets up the electronic check entry and sends it to the processor. It is then sent to the depositing financial facility where the debit or credit is made. In the above example, the retail store submits the authorized transaction to its own bank. The request then goes to Jennifer’s bank for the actual debit. Money is removed from her account and placed in the retail business account.

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