Electronic Check

What Is An Electronic Check?

It is the electronic version of the regular paper check. It is a means by which money is withdrawn from a checking account and deposited into a receiving account, usually for online payments.

Deeper Definition

It is a form of payment made through the internet or any other established data network that plays the same role as a conventional paper check but with more efficiency guaranteed in the aspects of cost and steps involved with lower risks involved due to the embedded security features. Electronic checks came into place, majorly, to keep up with the increased transactions that came to be as a result of e-commerce.

Electronic checks belong to transactions known as electronic fund transfers (EFTs) which enable seamless business dealings as part of the electronic banking sector. These ‘business dealings’ constitute what we now refer to as electronic commerce. Other features of digitalized banking are automated teller machine (ATM) withdrawals and deposits, debit card transactions, depositing remote checks, and so on. These options typically use various digital networking technologies to access relevant data of the transacting accounts to aid the performance of the required instructions. The entire range of transactions covered by paper checks can also be possibly handled by electronic checks and are regulated by the same agencies and laws as the paper substitutes.

Electronic checks were the first form of internet-based payments used by the United States treasury for making large payments online. Aside from helping cut production and processing costs by intermediaries, they also eliminate the need to have individuals physically present to post or cash the checks, leading to fewer chances of theft or interception of funds as in paper checks. Electronic check payments are handled using a processing center known as the Automatic Clearing House(ACH) network. They are commonly used in subscription-model businesses and those that deal with large payments.

Electronic Check Example

If payment is to be done using electronic checks by Mark, a distributor of construction materials, he is expected to firstly request authorization from his business partner.

Once the relevant information is provided to the ACH and the payer’s receipt is issued, the payment is then set up.