How to Avoid e-Check Heartache

And other ways to improve e-Check payment processing

By Matt Johnson, Director of Solutions Engineering

To avoid the age-old adage, “the check is in the mail,” let your customers pay by bank account through other routes. When a customer pays directly from their bank account online, it’s called an Automated Clearing House (ACH) payment, also known as eCheck.

Why Governments and Utilities Should Still Take eCheck Payments

Taking eChecks for utility and government payments has several advantages. It’s generally significantly less expensive to process an eCheck transaction than it is to process a credit card. That is often why you see a service fee associated with paying by credit card, but not with an eCheck transaction. If you want to provide a free option for people paying online, eCheck is the low-cost option. To process an eCheck transaction there is a nominal fee per transaction, as opposed to variable interchange rates charged by the credit card companies.

For merchants like government and utilities, there is a much lower risk associated with taking eCheck payments than there is for other merchants that sell goods. For instance, if a person pays for a television set by check and then walks out the door with it, that merchandise is gone whether the check clears or not. But governments and utilities provide services. If a check bounces, they can set a bill back to “unpaid” for that tax payment or electricity bill, for instance.

The Downside to Taking eChecks

There are many reasons why an eCheck payment may be returned unpaid. Common reasons include checks returned due to Non-Sufficient Funds (NSFs), an account that’s closed, or an invalid account number. If you’re the merchant whose payment was just returned, the headache has only just begun. Not only does your revenue go uncollected for the time being, but the process of untangling that failed transaction can also cost hours of an employee’s time:

• Staff must track down where the failed payment originated.

• Once they know the account associated with the original payment, they must change the record of the obligation from “paid” to “unpaid.”

• This might also trigger a late fee, which must be applied to a customer’s account, prompting additional communication and possibly multiple back-end systems.

• Lastly, notification is sent to the constituent whose payment failed, letting them know they need to come back and process their transaction again.

Avoiding Returned eCheck Payments

CityBase has had success in reducing our clients’ returned eCheck payments. Here are some of the strategies you can use when processing eCheck payments.

1. Add Account Verification

Payment processors can integrate directly to a check verification partner, such as First Data TeleCheck. These services cost an additional fee, but drastically reduce the amount of returned eCheck payments (which saves time and money associated with handling returned eChecks). As a person is making their payment, verification services will confirm if the bank account entered is real, if it’s open, and whether or not it’s in good standing—meaning it doesn’t have a certain threshold of returned eCheck payments that would cause concern. If the bank account fails this verification, the payment won’t go through. Your customer is alerted and can contact their bank for more information about why.

2. Communicate Proactively

Another common reason for payments to be returned is due to eCheck filters on a bank account. It is common for corporate accounts to have eCheck filters in place to protect which accounts are allowed to pull funds from them. This can occur when someone makes an eCheck payment from a corporate account, for common payments like business taxes. Corporate accounts typically have an approved list of ACH Company IDs, which designate which merchants the corporate account will release funds to. A corporate account may be valid and would pass verification. But if the business user has eCheck filters in place and tries to make a payment to an unauthorized merchant account, the payment will be returned. To avoid this from happening, it’s a good idea to list your ACH Company ID and have a message on a payment page (particularly for payments like business taxes) letting people know that they should add your ID before making a payment with a corporate account. This is essentially them telling their bank, “yes, you may send money to this merchant.”

3. Reduce Human Error

Whenever people manually enter data, you run the risk of introducing human error. Reduce your chances by having people type their account number into an online payment form more than once, to make sure the numbers match. For in-person payments, you can use check scanners that read the numbers on the bottom of the check rather than having a person type in their information. Online, people can also scan checks via a mobile device.

4. When All Else Fails, Alert People Immediately

Once a check payment is returned, it’s important to let someone know as soon as possible. This is good customer service and can help your customers avoid late fees. The longer you wait to tell someone about a returned payment, the more late fees they may incur, and the more frustrated they are to hear about the failed transaction.

eCheck Yourself Before You Wreck Yourself

The more payment options you make available for your customers, the easier it is for them to pay their bills. Many customers want the option to make government and utility payments by eCheck, and you should let them because it’s also much lower cost to process these payments. One major government client we serve sees up to 75% of its payments come from eChecks each day.

As with any payment (or really anything) you put online, good user experience goes a long way. By providing an easy-to-use eCheck payment option native to your own web domain, people will trust that they are making a secure payment directly for the service you provide. Give people paying from corporate accounts the information they need up front, so their payments go through seamlessly. And verify accounts as a person makes a payment, so once they finish a transaction, they can cross that task off their to-do list. If you don’t have some of these measures in place, it could amount to erroneously returned eChecks, which is also a poor user experience for your customers.

Payments by eCheck have the benefit of being lower cost to both you and the people you serve. Once you can also lower the rate of returned payments, there’s hardly any downside to accepting online eCheck payments.