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Check Processing – Improvements in the Electronic Age

Check processing used to use considerable resources for merchants to manage quickly and efficiently. Even with teams of data entry personnel and trips to the bank, it still took several days to finalize a transaction and fund the appropriate accounts. Once a check is written and given to a merchant, it must make several stops before being debited, unless it is drawn from the bank that the merchant uses. It first goes to an intermediary bank, as banks do not communicate directly with each other. The check is added to a batch and entered with hundreds of other checks. The intermediary bank, which may be a Federal Reserve Bank, a clearinghouse or correspondent bank, will verify that the account is active and that the dollar amount on the check is available. If the transaction is approved, the funds are removed from the consumers account and credited to the merchant’s account. If there are insufficient funds, the check is returned to the merchant. This entire check processing procedure may take up to ten business days. The lag time frequently causes issues in both the consumer and merchant accounts as there are bank fees charged each time this occurs. Electronic check processing is considerably faster than processing paper checks manually. The electronic transfer of funds, managed by an automated clearing house system is more efficient than the traditional method, as the funds are submitted for processing almost immediately, and if available, will be transferred to the appropriate merchant account. For consumers, it is more convenient, as they do not need to take the time to fill out an envelope and mail payment each month. For businesses, it can reduce bank fees for insufficient funds and is less of a drain on resources. Electronic checks are processed through software developed for this purpose. Check processing is now automated and the personnel necessary to complete the transaction have been reduced. To institute electronic checks into your payment procedures, there are three steps. First, notify your customers that their paper checks will be processed electronically. Next, convert paper checks into ACH-based electronic payments. The final step is to create an ACH file and present it to your payment processing company for settlement and funding. The process, though similar to traditional methods, has been reduced to two to three days. For more information on how electronic processing can help save your business time and money, contact National Processing or call 877-458-3323

Posted in ACH, Check 21, Check Processing, Checks, online payment processing, Payment Processing on Dec 09, 2009