Up until ten years ago the check transmission process was done by physical delivery. A business would deposit a check in their bank. It would then be sent by truck or plane to their customer’s bank. The check would then be processed or “cleared”, allowing for the funds to be taken out of the customer’s bank account and transferred to that of the business. If there was any delay in the transmission process a business would be impacted by not receiving these funds in a timely manner. Although the ability to electronically present a payment was available, the legality of it inhibited this from happening. The result of these laws impacted the transit of billions of dollars on September 11, 2001 when planes were grounded and banks were forced to transport checks by ground. As a result of this major impact the Federal Reserve asked Congress to legally process a digital copy of a check in lieu of a physical copy. This led to the creation of the Check Clearing for the 21st Century Act (Check 21) in 2003. This act allowed for the original check to be imaged and sent electronically from the receiving bank to the paying bank. This resulted in fund availability within 24 hours.
For businesses, Check 21 has created these benefits:
Quicker Receipt of Funds
With businesses receiving funds faster there is less of a need for them to have a need to borrow money to pay their bills.
Earlier Fraud Detection
Image capture allows for the faster processing of the check, resulting in earlier access to customers deposit information. The fast processing also allows for suspect checks to be returned quicker, reducing a bank’s exposure to fraud.
Proof of Payment
It is easy to retrieve an archived copy of an imaged check. This imaged copy is considered a legal equivalent of the original.
As much as there are benefits to Check 21, businesses need to be careful when the check writing is on their end. Just as customer checks are processed quicker so are those of the business. If funds aren’t available in their account at the time the check is written chances are it will be returned for insufficient funds.
Over time banks are continually looking at new services that can help business owners manage their cash flow. One that many are currently providing is onsite check deposit. This allows the business owner to scan a check at their place of business then transmit the check image directly to their bank. By using this type of service the business owner will no longer have to have someone go to the bank to deposit funds, saving them time to work on other business activities.
Check 21 is here for the long haul and will continue to affect the cash flow of a business. Understanding the different aspects of it will allow business owners to know what funds are entering and exiting their business without skipping a beat.
Join the conversation. How is Check 21 affecting your business? Do you like the benefits? Does it result in problems for your business? Let us know in the comment section below.
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