by John E. Fox

Do you receive a lot of checks? So many checks, in fact, that …

• You do not have enough manpower to process your checks in-house? As a result, do you outsource your check processing to a lockbox service provider?
  
• It takes your staff days to process your checks in-house? As a result, does it take too long for your checks to clear and for your funds to become available?

If you regularly receive large volumes of checks, you should consider processing them electronically. Doing so would alleviate much of the manual labor involved in your check depositing procedures - including trips to the bank. You would also accelerate check clearing times, which decreases float and makes funds available for use faster.

If you're using a lockbox, you could eliminate those expenses, since an electronic check processing solution could be used in-house by existing personnel. This type of solution combines hardware, software and services that handle check processing - from the time the check is received to the time it is presented to your bank for posting and settlement.

Electronic check clearing methods that make this possible - such as Check 21 and ACH - and the benefits they deliver to businesses, are described within this issue of The AccuView. By understanding these benefits and determining what type of solution makes sense for your business, you've taken the first step toward check truncation and electronification. Ultimately, the key to success lies in being prepared to roll out a solution that meets your check processing needs … now and well into the future.

I look forward to learning about your check processing requirements and helping you devise a custom solution that meets those requirements. I invite you to contact me for a consultation.

Best regards,

John E. Fox

john.fox@accuimagellc.com

What is it and how does it work?

On a basic level, remote deposit capture is simply a way for corporations to take the checks they receive from customers and business partners and send those checks electronically to their bank.

In October 2003, Congress passed the Check Clearing for the 21st Century Act (Check 21), which lets banks use electronic images as legal documents. Instead of having to transport the original check back to the paying bank for clearing, banks could accept an electronic image of the check.

In its most basic form, here's how the process works:

• A company receives checks by mail or delivery.
  
• The company performs its normal processing, including opening the mail and entering data from the check (dollar amount, date, etc.) into its accounts receivable system.
  
• Checks are prepared for deposit.
  
• The checks are loaded into a check scanning device.
  
• Using software on the desktop, or a hosted offering from their bank, companies can transmit electronic images, usually as a 128-bit encrypted file, over the Internet to their bank.
  
• The bank receives the file, inspects it for image quality, errors and duplications, and begins sorting the checks for clearing.
  
• Once a deposit confirmation comes from their bank, companies can store or dispose of the paper checks as they see fit.

"For the average business, it typically means companies can get access to their money a day faster," says John Leekley, an industry analyst and chief executive of Alpharetta, Ga.-based RemoteDepositCapture.com. In addition, remote deposit capture technology lets corporations more closely integrate their check clearing processes with their financial systems, reducing processing time and costs.

Are you ready for remote deposit capture?

• Does your company process a large volume of checks?
  
• Is sending an employee to deposit checks a cost/liability concern?
  
• Do you deposit checks elsewhere than your primary bank, for convenience?
  
• Can you store checks for an extended period after they've been scanned?
  
• Is improved cash flow, via faster access to funds, critical to your business?

If you answered yes to any of these questions, you're ready for remote deposit capture. Call AccuImage at 615.242.7226 to discuss your unique check processing requirements.

Source: Baseline, March 2007

New rules allowing for the back office conversion (BOC) of checks to electronic transactions will streamline the entire check transaction process. That's according to Paul Lufkin of ePayments Corp. "Electronic check conversion is going to skyrocket," said Lufkin. "BOC makes the whole conversion process easier and more efficient for financial institutions, merchants and check writers."

The new rules, developed and issued by Herndon, Va.-based NACHA, became effective March 16, 2007. BOC allows merchants to collect consumer checks accepted during the day and convert eligible items into automated clearing house (ACH) transactions in the back office - away from the checkout lane or point of sale (POS).

With BOC, for example, the need for a scanner at each checkout lane is eliminated, along with the need for cashiers to gain explicit consumer authorization to convert each check transaction. According to NACHA, POS transactions went from zero to 500 million between 2001 and 2006, Lufkin said, and that number is expected to rise into the billions in 2007 with the advent of BOC.

Compliance issues also accompany the new BOC rules, Lufkin noted. Organizations accepting checks for back office conversion must clearly inform consumers that their checks will be converted to an ACH payment, and, if applicable, that their non-sufficient funds (NSF) check will be collected electronically and that they will be charged an NSF fee, not to exceed the allowable state authorized NSF limit. Businesses that don't comply can face serious fines and penalties.

For consumers and businesses writing checks, Lufkin explained that it's important to understand that electronic conversion will reduce float time, and that it is possible to opt-out of having checks electronically converted, but merchants then have the option of refusing to accept payment by check.

Lufkin noted that electronic check conversion continues to be one of the fastest growing types of ACH transactions. NACHA recently reported that ACH transactions grew by 15.6 percent in the fourth quarter of 2006 compared to the year before, with more than 3.24 billion transactions worth an estimated $6.75 trillion conducted during the quarter. In 2005, nearly 14 billion ACH payments were made, with an estimated 2.3 billion checks converted into ACH payments.

Source: Transaction News, March 2007

Check 21 Holds Paper in Check

Did you know that a standard "check box" holds approximately 3,000 checks - weighing ten pounds? More weighty is the cost of transporting physical checks from the point of deposit to the point of presentment, and the associated time delay, which have added to the overall cost of check processing. Further, the potential for transportation disruption poses business continuity risk.

On the surface, therefore, by addressing these issues, Check 21 creates a trajectory toward the nirvana of automated, accelerated check processing for optimal cost-efficiency. By making the paper copy of an electronic image the legal equivalent of the original check, Check 21 allows the image copy to substitute for the original check during final presentment. This legislation moves the industry toward full electronic image exchange by removing the original paper check from the collection or return process. Image-capable banks can present non-image-enabled banks with an image replacement document (known as an IRD) that meets the requirements of a substitute check or paper copy of a check image - sent electronically and printed locally. By eliminating the need to physically transport original checks, Check 21 creates cost savings and mitigates business continuity risk.

At the same time, Check 21 further complicates an evolving payments landscape by adding to the growing number of check electronification options. For example, Check 21 coexists with check-to-ACH services, which include ARC, POP and RCK, as well as WEB and TEL transactions. The type of check-to-ACH transaction used depends on where payment is made (e.g., lockbox vs. point-of-sale) and where the check is in the transaction flow (e.g., payment vs. return). While check-to-ACH services currently apply to consumer payments, expanding the solution to wholesale payments is also under discussion. And customer preferences vary for an even broader range of payment options, including electronic bill presentment and payment and electronic invoice presentment and payment - for retail and wholesale usage respectively - and commercial cards. In this plethora of options, Check 21 introduces yet another solution.

Check 21 seeks to (a) increase the efficiency of check clearing in the United States; (b) lower check processing costs; and (c) reduce the vulnerability of the check processing system to disruptions in air and ground transportation. Check 21 does not require that banks send or receive checks electronically; it simply makes substitute checks the legal equivalent of original paper checks and requires that banks accept and process them.

The Acronyms and What They Mean

• Accounts Receivable Conversion (ARC). An automated clearing house (ACH) transaction format that supports the electronic clearing and settlement of checks converted to electronic at lockboxes or other remittance collection sites. An example of this would be when a check is written, typically to pay a bill, and the biller converts that check to an ACH transaction.
  
• Automated Clearing House (ACH). A nationwide electronic funds transfer system that provides for interbank clearing of electronic payments for participating financial institutions. Payroll direct deposit, Social Security and tax refunds, and direct payment of mortgages and utility bills are all examples of ACH payments.
  
• Check 21. The Check Clearing for the 21st Century Act makes substitute checks the legal equivalent of original checks. A substitute check is a paper reproduction of an electronic image of an original paper check. Under Check 21, the bank of first deposit (where the check is deposited) may present substitute checks instead of original checks to the paying bank (where the check is drawn). The law applies to virtually all check types.
  
• Point of Purchase (POP). An ACH transaction format for converting checks tendered at the point of sale to electronic transactions. For example, a cashier receives a check, then scans it through a MICR machine, creating an ACH or electronic transaction to directly debit the customer's checking account. The cashier voids the check, asks the customer to sign an authorization, and hands the check back to the customer.

The Bottom Line?

Regardless of the electronic check clearing method you use … the bottom line is that, while the payments system may never fully take the paper out of the check, these clearing methods can succeed in keeping paper in check through the use of the latest technology.

Choosing which payment method best advances strategic business goals is not a light decision, but it should be an enlightened one. Businesses should work closely with their banking and technology partners to think through the various choices and their implications. With so many aspects to consider, the sound advice of trusted advisors can help companies determine the optimal choice for their unique requirements.

For a consultation, contact AccuImage at 615.242.7226.

Sources: JPMorgan Chase and Wells Fargo

AccuImage, LLC is a systems integrator that empowers their customers with solutions designed to gain the maximum value from their information at every point in the information lifecycle. Founded in 1996 and headquartered in Nashville, Tennessee, AccuImage specializes in the design, installation and support of document and content management systems, forms processing solutions, and electronic workflow systems. The company offers hardware and software from leading companies - AnyDoc Software, Böwe Bell+Howell, Canon, Captaris, Captovation, EMC Documentum, Fujitsu, Hewlett-Packard, IBM, Kodak, Kofax, Panasonic, Plasmon and Verity - as well as consulting, document conversion and professional services.