Electronic Checks

Electronic money
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You might think of checks as paper documents for payment, but you often make electronic payments out of your checking account. Even if you write a check by hand, the check can be converted to an electronic payment at the cash register – resulting in the funds leaving your account faster than you might have expected.

How Electronic Checks Work

An electronic check is an electronic payment from your checking account processed through the ACH system.

There are two ways this happens.

Manual entry: when you provide your checking account details (your bank account and routing numbers) to a business, they are able to pull funds from your checking account electronically. This payment option is often called an E-Check, EFT, or similar. You can provide that information by typing it in online or giving it to a phone representative orally.

Check conversion: you might also write a check the old-fashioned way and not even know that it gets converted into an electronic check. Some merchants have check reading machines at checkout counters that quickly read the information from your check for processing your payment. The numbers on the bottom of your checks are printed in a special font (usually with magnetic ink), making it easy for special devices to get the information they need.

Checks can also be converted by service providers (such as your utility company) when you mail in a check for payment.

Electronic check conversion is different from substitute checks, which are used between banks under the Check 21 law.

  • More details: How the Check 21 Law Clears Checks Faster

Impact of Electronic Checks

Fast payments: electronic checks allow businesses to process payments quickly. As a consumer, the most important thing to know is that the money will come out of your checking account sooner than you might expect.

You need to make sure you have enough money available in your account whenever you write a check, and you can’t rely on ‘float’ time as much as you might have in the past.

To make sure you’ve always got enough money, balance your account regularly (at least until you’re confident that you won’t overspend), and set up alerts with your bank so you know when you’re running low on funds.

Low cost for business: electronic checks are inexpensive for businesses. These payments cost less to process than credit cards cost (the cost to the business is often less than $1 for an E-check). They are also easier – there’s no need to take all of those checks to the bank. What’s more, since businesses get the funds more quickly, their cash flow situation is improved.

Disclosure and Identification

Businesses are supposed to notify you if they’re converting your payment to an electronic check. If you’re in a store, look for a sign near the registers saying they’ll turn your paper check into an electronic check. If you’re mailing in a check to pay a bill, the company probably discloses their electronic check policy somewhere in the fine print of an agreement or on the back of your statement.

If a cashier drops your check into a machine and hands it back to you when you make a purchase, they’ve used an electronic check.

What to do if there’s an Error

Mistakes happen. Contact your bank immediately if you find errors as a result of an electronic check transaction. You must notify your bank within 60 days of when the error appeared on your statement or you may lose certain rights (you might be responsible for the loss after that time). Your bank may take up to 45 days to investigate your claim, and will notify you of their findings.

Other Ways to Pay

Payments are increasingly electronic – even if you use your checkbook, your payment might be converted. This can cause confusion when you don’t see the payment with the check number you expected. Since it’s all electronic anyway, evaluate other ways to pay, such as debit and credit cards or online bill payment options.