eCheck Return | B2B Finance Glossary

What Is an eCheck Return?

An eCheck return is when a receiving bank rejects an eCheck payment – a situation that’s very similar to when a paper check bounces and payees cannot collect the funds their payers intended to transfer to them.

An eCheck is a digitized form of a check payment called an internet check, an online check, or a direct debit. Unlike a traditional check payment. which is a paper-based payment that must be processed manually. eChecks are processed electronically by the Automated Clearing House (ACH) Network, which initiates ACH payments and connects over 10,000 financial institutions across the US.

When a payer initiates a transaction through an eCheck, money is electronically withdrawn from the payer’s checking account and then transferred across the ACH network before it is deposited into the payee’s bank account.

Why Is an eCheck Returned?

Receiving banks can reject eChecks for many different reasons, including the following:

• Insufficient funds
• Revoked authorizations
• Account closures
• Incorrect account numbers

How Do Returned eChecks Impact Businesses Waiting to be Paid Through this Method?

Finance team members need to spend a great deal of time determining where the failed payment originated, and in the process, they are required to change the record of the obligation from “paid” to “unpaid.”

This can potentially trigger a late fee, which must be applied to the payer’s account. This will prompt additional communication and potentially multiple back-end systems.

Finally, a notification will be sent to the customer whose payment did not go through, and that customer will be informed that they need to send their payment again.

How Can Businesses Avoid Returned eCheck Payments?

The best way to cut down on returned eCheck payments is to help your customers avoid actions that can commonly lead to returns in the first place. Here are a few things your company can do to make this happen:

Cut Down On Human Errors

Manual processes make human errors impossible to avoid. When customers choose to pay your company via eCheck, they must enter their account information online.

By requiring them to enter this information more than once to ensure the numbers match and are accurate, you can greatly reduce the number of eChecks returned due to incorrect account numbers.

Ensure Proactive Communication

Sometimes, corporate accounts have eCheck filters to protect which accounts can pull funds from them. It’s standard for corporate accounts to have an approved list of ACH Company IDs, which designate which merchants the corporate account will release funds to.

Some corporate accounts will be valid and pass verification, but the payment will be returned if an eCheck filter is in place and the payer tries to pay an unauthorized merchant account.

Businesses can proactively eschew eCheck filters by listing their ACH Company IDs and ensuring a message on their payment page lets others know that their IDs should be added before payments are made through their associated corporate accounts. This is how they let their banks know they can and should send money to approved merchants.

Work With a Verification Partner

It is possible to purchase check verification partners that will integrate directly into payment processing systems and work to confirm whether or not the account information that’s been entered by the customer for an eCheck payment is authentic, open, and in good standing (accounts that are not in good standing violated a certain threshold of returned eCheck payments). These verification partners do cost an additional fee. Still, they are often worth it because they significantly reduce the amount of returned eCheck payments that cost companies unnecessary time and money.

Remember that if your company does all of the above and an eCheck payment is still returned, it’s important to take action and inform the customer about the returned payment as soon as possible. A good way to think about this practice is as if it were an extension of your customer service department: alerting your customers quickly about returned eCheck payments helps them in the long run because it can keep them from incurring late fees and ensures that their payment schedules are timely.

Finally, you can avoid returned eChecks by offering your customers multiple ways for them to pay for your products and services. If you’re looking for a seamless, digital B2B payment solution with zero fees, learn more about Paystand and our direct-bank payment network. We make it easy to collect online payments, avoid transaction fees, and reduce DSO. For more information, schedule a time to speak to one of our payment experts today.