In yesterday’s payment system, paper checks must be physically moved from where the check is deposited, to the financial institution that pays the check. This process can take several days, sometimes even weeks, to complete. The US Government enacted Check 21 to reduce the dependency on physical transportation of checks, and to enable new ways to process checks.
What Is Check 21?
The Check Clearing for the 21st Century Act (or Check 21 Act) is a United States federal law (public Law 108-100) enacted into law on October 28, 2003 by the 108th Congress, taking effect one year later, on October 28, 2004. The law allows the recipient of a paper check to create a digital image, which eliminates the need for further handling of the physical document, thereby speeding up the clearing process. This paved the way for the finance industry to save billions of dollars.
As a direct result, consumers noticed that some checks are no longer being returned to them with their monthly statement, even though other checks are still being returned. Instead, the information required by the processing bank to affect payment is supplied electronically in the form of a scanned image of the instrument (also referred to as the substitute check).
Check 21 doesn’t change how people or businesses write checks. Instead, it impacts how checks are being processed by financial institutions, by enabling them to scan paper checks and send images for electronic processing. Check 21 created a more efficient way of processing checks.
How Check 21 Works?
When a check is deposited, financial institutions can create an electronic image by scanning the paper check. A paper check is scanned using a scanning device, and the check’s digital image is stored in an Image Cash Letter (ICL) file in the required X9.37 file format. The X9.37 format is approved by the Federal Reserve Bank for combining multiple check images and related check information into a single file. They then transmit the image to another financial institution for processing. Check 21 provides the rules and guidelines for the use of substitute checks, and offers protections to those who may receive a substitute check.
Substitute checks can be used for record keeping, or proof of payment, the same way as the original check. When someone receives a substitute check, and there is an issue or error with the account, a special return procedure will take effect. Each financial institution will provide information on how this return procedure works.
What Is Remote Deposit Capture?
Check 21 processing revolutionized the checking industry, the capture technologies, and its processes. It also opened the doors for new markets and new business opportunities. With a Remote Deposit Capture (RDC) software solution, you, the merchant, can capture the image of your checks and send it to your bank electronically – quickly and conveniently. This eliminates your daily trip to the bank, and allows automatic posting to your accounts receivable system.
What Are The Benefits of Check 21 For Your Businesses And Customers?
- PEACE OF MIND – Cut time, costs and risks associated with transporting paper checks
- BETTER CASH FLOW – Optimize funds availability by accelerating collections and returns
- EXTENDED CUTOFF TIMES for deposits
- GLOBAL MARKET REACH – Expand markets served beyond traditional geographic boundaries
- SAVINGS – Reduce bank charges with electronic payment processing AND reduce capital, operational and staff expenses by eliminating second pass encoding processes
- FASTER FRAUD DETECTION – Identify potential fraud sooner
- SECURITY – Improve accuracy by eliminating paper processing steps and human handling
- EFFICIENCY – Eliminate accounts at multiple banks by consolidating deposits electronically
- BETTER PRODUCTION PROCESS – Increase staff productivity by streamlining operations
- TRANSPARENCY – Providing on-line image based services to customers
Industries that could Get Maximum Gains from Check 21 Processing
Money changes hands in all business transactions. Most, if not all, industries are to benefit from check21 processing – such as medical care, hospitality, travel, to name a few – industries which are characterized by a 24/7 work environment, and where hassle free services is paramount, are likely to gain the most from Check 21 processing.
Also, industries which operate under greater risk of losses from fraudulent and returned checks, like consultancy firms handling funds deployment, or real estate, would also prefer to operate in a Check 21 supported scenario. Businesses that sell online can also accept checks, by acquiring secure check processing software, or payment gateway, which can be integrated with their websites, and allowing their customers to authorize check payments online.
GFC Financial has vigorous verification processes in place to include negative check database lookup and account verification. We are capable of undertaking proactive actions to eliminate risks of fraudulent or returned checks.
Our experts have extensive experience working with, and getting approval for, Check 21 accounts for a wide variety of industries. GFC Financial understands how important your cash flow is, and how a Check 21 account can significantly improve the efficiency of your business.
Talk to us now to find out how you can have Check 21 Payment Processing for your business.