Q: How
can electronic check acceptance benefit my business? And what
equipment or services do I need to process e-check
transactions?
A: We
all know that consumers love writing checks. But let's face
it--store owners are not always eager to accept them. And their
reluctance is understandable, considering the risks and hassles
traditionally associated with check acceptance. Fortunately for
merchants and their customers, check payments are becoming faster,
safer and more cost-effective, thanks to a process called check
conversion.
Designed to mirror the credit card payment process, check
conversion transforms paper checks into electronic
transactions--also known as e-checks--that are securely processed
in real-time. Funds from authorized payments are deposited
automatically into merchants' accounts, usually within two
business days.
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Each year, U.S. consumers initiate an astounding number of
e-check transactions, many of which are created though the check
conversion process. According to statistics released by the
National Automated Clearing House Association, more than 200
million e-check payments were processed in 2001. Of these
transactions, 88.7 million originated at the point of sale. This
considerable volume suggests that more shoppers are accepting check
conversion as a quick and easy way to pay for goods and
services.
It's not hard to see why e-checks are catching on. The
conversion process is simple:
- A customer presents a paper check at the point of sale.
- The merchant uses a magnetic ink character recognition (MICR)
check reader to scan the check and capture bank account
information. (Some point-of-sale terminals also offer imaging
capabilities, which capture address information for added
security.)
- The terminal electronically sends the account data and dollar
amount of the sale to the check service provider for
verification.
- The check service provider approves or declines the
transaction.
- If it is approved, the customer signs a sales receipt, which
authorizes the merchant to debit the customer's account.
- The check is franked--that is, it is marked or stamped as
processed--and voided; then it is returned to the customer, along
with a copy of the sales receipt.
- In as little as two business days, an automated clearing house
(ACH) deposit posts the amount of the sale to the merchant's
direct deposit account.
The benefits to merchants are numerous. For one, all converted
checks are verified, usually at no extra charge. Better yet,
merchants who use these services in conjunction with e-check
acceptance are guaranteed their funds from approved transactions,
because returned checks are the responsibility of their check
service providers.
Other e-check acceptance advantages include:
- Reduced bank charges.
- Electronic batch closing, which eliminates errors and reduces
time spent preparing and reconciling deposits.
- Improved cash flow, due to faster closing and settlement.
- Electronic deposits, which reduce trips to the bank.
- Enhanced security.
- Increased business and higher ticket amounts per sale.
- Improved customer loyalty.
Accepting e-checks is easy. Established merchants who already
own payment terminals and printers can usually connect MICR check
readers directly to their existing equipment. New merchants--and
businesses that want to upgrade their payment equipment--also have
the option of using terminals with integrated check readers. These
all-in-one units offer numerous advantages, such as:
- Less cabling and clutter at the point of sale.
- Increased counter space.
- Freedom from compatibility conflicts (such as a terminal that
can't accommodate the check reader).
- Ease of use.
- Automatic check franking.
- Increased processing power. (Some terminals support additional
payment methods, such as ATM/debit cards, stored-value and
purchasing cards, or electronic benefits transfer payments.)
- Reporting features that facilitate bookkeeping.
To process e-check transactions, store owners must also have
merchant accounts with payment service providers that support check
conversion. Most check verification services rely on databases of
bad check writers to determine whether or not to authorize
transactions. So it's important for merchants to go with
experienced companies. One example is Telecheck, a leading provider
of check services that helps merchants reduce risk and streamline
operations. Ideally, fraudulent check activity should be captured
as it occurs.
Thanks to increasingly advanced anti-fraud measures and
technology that incorporates check readers into point-of-sale
processing solutions, payment service providers can now offer
e-check acceptance to more merchants than ever. This means growing
businesses can safely provide customers with the same payment
options and flexibility as their larger competitors. Simply put,
e-check acceptance enables more businesses to maximize sales and
customer service while minimizing their risk and costs.
Cardservice International Senior Vice President of
Sales John Burtzloff is in charge of sales strategy and
execution and thus is responsible for managing all aspects of the
company's marketing, communications, telesales, check
guarantee, new accounts and sales support activities.
The opinions expressed in this column are those
of the author, not of Entrepreneur.com. All answers are intended to
be general in nature, without regard to specific geographical areas
or circumstances, and should only be relied upon after consulting
an appropriate expert, such as an attorney or
accountant.