Full Form Of Ecs Electronic Clearing System Types Objectives

Full Form of ECS (Electronic Clearing System)

Objectives

The electronic clearing system aims to provide a facility to the users for making bulk payments, which would be very troublesome if done through physical mode involving the presentation of documents at the bank’s respective branch. It helps for fast and secure fund transfers in case payments are required to be carried out in bulk or repetitively.

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Types

There are two types of electronic clearing systems, ECS (DebitDebitDebit represents either an increase in a company’s expenses or a decline in its revenue. read more) and ECS (Credit), based on the organization’s outflow or inflow of funds.

#1 – ECS (Debit)

It is used to raise debits to numerous bank accounts for single credit to the user’s bank account. It helps the user collect payments from its various customers, which are periodic or recurring.

#2 – ECS (Credit)

It is used to credit the amount to numerous bank accounts by a single debit to the user’s bank account. It helps make payments such as interest, salary, dividendsDividendsDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read more, etc.

Working in Electronic Clearing System

For carrying out transactions using ECS (Credit), one needs to submit the relevant information about the beneficiaries, such as account number, account name, bank name, IFSC Code, branch name, scheduled payment date, etc., in the specified format (namely input file) via its banker to approved clearinghouse where such bank is registered. The bank managing such an electronic clearing system Centre will then debit the user’s account on the date specified as the scheduled payment date and credit the amount to the accounts of destination banks, which then transfer the same to the beneficiaries’ bank accounts.A similar process is followed for using the electronic clearing system (Debit) to receive bulk payments. The user must submit similar banking information about its customers in the input file through the bank to the clearinghouse. The bank managing the electronic clearing system Centre then passes the debit to destination banks for further debit to the customer’s bank accounts and credit to the user’s banker for further credit to the user’s account.

Difference Between ECS and NACH

The electronic clearing system has limited reach with limited centers in the country, whereas the NACH platform aims to have a larger reach throughout the country.In NACHNACHNACH (National Automated Clearing House) is as a secure, robust and a scalable online-based platform that is used for facilitating inter-banking and high volume transactions for financial institutions, banks, companies, and government bodies.read more, the activation time of the mandate is usually ten days, as against 30 days in the electronic clearing system.Further, the presentation and settlement process takes around 3-4 days in ECS, while NACH completes the same within 24 hours.NACH has an online grievance redressal system that has been missing in the electronic clearing system.NACH provides a unique reference number for transactions that can be used for tracking them. The same is not available in the case of the electronic clearing system.

Advantages

It eliminates the need for physically depositing the documents and other instruments at the bank for payments.The risk of paper instruments, such as cheques, being lost or misused is eliminated.The fund transfer is quick and is normally received by the beneficiary within the same day.This enables users to make automatic payments on due dates, such as utility bill payments. Thus, customers need not remember due dates if they use this service.The overall process is much more convenient for bankers, with everything done electronically.The system is a cost-effective process for making bulk payments.

Disadvantages

Initial activation of the electronic clearing system is a lengthy process.There is no online grievance cell available for the resolution of a dispute.

Conclusion

This is a useful tool used by almost all business persons with many transactions to make during the day. It helps them to complete their payment process in a timely and cost-effective manner.