Electronic Check

Posted in Finance, Accounting and Economics Terms, Total Reads: 546

Definition: Electronic Check

Electronic Check is an alternate payment method for the conventional check that eliminates the need of using a physical check. The need of electronic checks came up when there was increased use of e-commerce to make purchases and payments. It was first developed to handle large online payments. Earlier customer used to write checks then the check was deposited by the receiver in his/her bank from where the bank used to do the authentication with the payee’s bank and the check was processed.

This process used to take days which meant that the money took time to come into the account which led to delays in business activity. With the coming up of the new technology much of effort and time has been saved.

The e-check process can be explained by taking an example of a customer buying groceries in a supermarket. When the customer writes a paper check to make payment the employee handling the payment kiosk, the employee moves the check through a reader which captures the information such as the account holder name, account number, cheque number and the financial institution of the account holder. The employee also looks at the merchant information, depending on the agreement between the payee’s bank and the merchant the check is verified and receipt is generated which is to be signed by the payee. The employee at the store keeps the receipt and the check is returned, the payment is recorded as a debit. The merchant then receives the payment from the customer’s bank within a couple of days.

There are many advantages of using an e-check which are as follows:

a. Eliminates to and fro from the bank

b. No chance of check being lost or stolen

c. No delays in payments

d. Healthy cash flow for business

e. Customer information can be stored which can be used for future payments

f. Automatic receipts on mail.


Hence, this concludes the definition of Electronic Check along with its overview.


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