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Accepting E-Checks

From increased security to reduced bank charges, the benefits are numerous.

Opinions expressed by Entrepreneur contributors are their own.

Q: Howcan electronic check acceptance benefit my business? And whatequipment or services do I need to process e-checktransactions?

A: Weall know that consumers love writing checks. But let's faceit--store owners are not always eager to accept them. And theirreluctance is understandable, considering the risks and hasslestraditionally associated with check acceptance. Fortunately formerchants and their customers, check payments are becoming faster,safer and more cost-effective, thanks to a process called checkconversion.

Designed to mirror the credit card payment process, checkconversion transforms paper checks into electronictransactions--also known as e-checks--that are securely processedin real-time. Funds from authorized payments are depositedautomatically into merchants' accounts, usually within twobusiness days.

Each year, U.S. consumers initiate an astounding number ofe-check transactions, many of which are created though the checkconversion process. According to statistics released by theNational Automated Clearing House Association, more than 200million e-check payments were processed in 2001. Of thesetransactions, 88.7 million originated at the point of sale. Thisconsiderable volume suggests that more shoppers are accepting checkconversion as a quick and easy way to pay for goods andservices.

It's not hard to see why e-checks are catching on. Theconversion 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 accountinformation. (Some point-of-sale terminals also offer imagingcapabilities, which capture address information for addedsecurity.)
  • The terminal electronically sends the account data and dollaramount of the sale to the check service provider forverification.
  • The check service provider approves or declines thetransaction.
  • If it is approved, the customer signs a sales receipt, whichauthorizes the merchant to debit the customer's account.
  • The check is franked--that is, it is marked or stamped asprocessed--and voided; then it is returned to the customer, alongwith 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'sdirect deposit account.

The benefits to merchants are numerous. For one, all convertedchecks are verified, usually at no extra charge. Better yet,merchants who use these services in conjunction with e-checkacceptance are guaranteed their funds from approved transactions,because returned checks are the responsibility of their checkservice providers.

Other e-check acceptance advantages include:

  • Reduced bank charges.
  • Electronic batch closing, which eliminates errors and reducestime 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 alreadyown payment terminals and printers can usually connect MICR checkreaders directly to their existing equipment. New merchants--andbusinesses that want to upgrade their payment equipment--also havethe option of using terminals with integrated check readers. Theseall-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 thatcan't accommodate the check reader).
  • Ease of use.
  • Automatic check franking.
  • Increased processing power. (Some terminals support additionalpayment methods, such as ATM/debit cards, stored-value andpurchasing cards, or electronic benefits transfer payments.)
  • Reporting features that facilitate bookkeeping.

To process e-check transactions, store owners must also havemerchant accounts with payment service providers that support checkconversion. Most check verification services rely on databases ofbad check writers to determine whether or not to authorizetransactions. So it's important for merchants to go withexperienced companies. One example is Telecheck, a leading providerof check services that helps merchants reduce risk and streamlineoperations. Ideally, fraudulent check activity should be capturedas it occurs.

Thanks to increasingly advanced anti-fraud measures andtechnology that incorporates check readers into point-of-saleprocessing solutions, payment service providers can now offere-check acceptance to more merchants than ever. This means growingbusinesses can safely provide customers with the same paymentoptions and flexibility as their larger competitors. Simply put,e-check acceptance enables more businesses to maximize sales andcustomer service while minimizing their risk and costs.

Cardservice International Senior Vice President ofSales John Burtzloff is in charge of sales strategy andexecution and thus is responsible for managing all aspects of thecompany's marketing, communications, telesales, checkguarantee, new accounts and sales support activities.

The opinions expressed in this column are thoseof the author, not of All answers are intended tobe general in nature, without regard to specific geographical areasor circumstances, and should only be relied upon after consultingan appropriate expert, such as an attorney oraccountant.

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