eChecks: a Simple Alternative to Credit Cards

What are eChecks?

As you might have guessed from the name, an eCheck is basically a purely electronic version of a check. Because eChecks go through the Automated Clearing House (ACH) system instead of the credit-card processing system, they are also simpler and cost less to process than credit cards.

If you have ever tried to get set up credit-card processing, you know how convoluted the system is. (Easy-to-use processors like PayPal, Stripe, and Square just hide the complicatedness; it’s still there.) Check processing, however, is much simpler. That is why it is less expensive to use, and easier.

Advantages to eCheck Processing

There are several advantages to eCheck processing.

First, reconciling eCheck transactions is easier than reconciling credit-card transactions. With a credit card, transfers from your merchant account to your checking account can include several payments, and you also have to account for processing fees. It can take several steps to trace and reconcile a single payment. It may also be difficult to keep track of what you are actually paying, since you may be billed separately for multiple parts of the processing chain.

eChecks are much easier — as with a paper check, you only have to reconcile the payment. You may not even have to deal with fees (MyCase, for example, covers the cost of eCheck payments made through its payment portal). Transaction fees for eChecks are cheaper if you do have to pay them, though. An eCheck transaction typically costs less than $1.50.

Plus, anyone with a bank account can use an eCheck. Most people have credit cards, but everyone with a credit card also has a checking account. And all you need to make eCheck payments is a checking account.

In short, eChecks are just a new way to use an old, familiar, and easy payment system: checks.

Yes, eChecks Are Compatible with Trust (IOLTA) Accounts

With credit cards, it can be tricky to accept advance fees that need to go into your client trust account. Rules vary by state, but in general the fees must come out of the law firm’s operating account so that 100% of the advance fee ends up in the trust account. The same is true with eChecks if you have to pay a transaction fee.

But again, you may not have to pay a fee at all. Because it costs so little to process eChecks, some providers (like MyCase) simply absorb the cost. If there is no transaction fee, then there is effectively no difference between accepting cash or a paper check and accepting an eCheck. Deposit the money straight to your trust account and you are good to go.

If you want to accept eChecks through a processor that does charge a transaction fee, you will need to make sure it can withdraw the fee from your operating account but deposit the full payment in your trust account. (Some states have more flexible rules, so make sure you understand your state’s rule on credit-card and eCheck transaction fees before you start taking payments.)

How eCheck Payments Look to Clients

Before you start sending invoices, you might want to have encourage your clients to pay via eCheck instead of sending a paper check. They save on postage, and you don’t have to wait as long to get paid.

Then, make sure you enable eCheck payment on your invoices. Once you do that, your invoices will look something like this (I’m using MyCase in this article as an example):

By now everyone knows how to make a payment with a credit card: enter the account number, expiration date, card security code, and your name, then click the pay button. eCheck payments work pretty much the same way. Enter your account number, routing number, and name, then click the pay button.

Just as with credit card payment forms, eCheck payment forms vary a bit. Here’s an example from MyCase’s payment portal:

If your clients don’t carry checks any longer and don’t have their account and routing numbers memorized, they can always get that information by logging into their bank account. My bank (Wells Fargo) makes those numbers easy to find so I can just copy and paste:

Bounced eChecks?

eChecks do have one disadvantage: like paper checks, eChecks can bounce. As with paper checks, eChecks must be sent to the payor’s bank for approval. In the meantime, your bank will probably make the money available to you. But if the payor’s bank returns the check for insufficient funds (NSF), your bank will reverse the deposit.

To be safe, you should have a waiting period before you consider payments available. Most eChecks will bounce within a few days. A week is a pretty safe waiting period, but if you want to be extra careful, make it ten days. Your malpractice insurance provider may also have a recommendation.

Whatever waiting period you choose, make it firm. Do not distribute any funds before the waiting period expires. (This has the additional benefit of insulating you from scams.)

Since it is difficult to stop payment on a check (there is usually a charge to the payor), you aren’t likely to be surprised after the waiting period. Waiting sucks, of course, but since stopping payment on an eCheck is more difficult than reversing charges on a credit card, there is probably a reduced risk of getting un-paid.

Get Paid Faster

Enabling online payments means getting paid faster because you don’t have to wait around for your clients to get together their checkbook, your invoice, postage, and an envelope all at the same time. eChecks are one of the easiest forms of online payment to accept, so if you have an easy way to accept eCheck payments, it just makes sense to do it.

Featured image: “Midsection of businessman giving cheque at desk in office” from Shutterstock.

eChecks: a Simple Alternative to Credit Cards was originally published on Lawyerist.