To make check processing in a speedy manner, Check 21 Act was introduced. This in turn has helped banks to handle huge amount of checks in a very short time.The main advantage is the ability to cut the time it takes for a check to clear from days to hours processing through images than a physical check read through MICR.
Check 21 Act is the common name for the Check Clearing Act for the 21st Century. It’s new legislation that was recently passed by congress and made a law when signed by the President of the United States (remember “I’m just a bill” from Saturday morning cartoons)check 21 Act basically streamlines the traditional check processing system by incorporating new electronic technology. This new system replaces an outdated check clearing system that banks and other financial institutions have used for many years. The advantage is the ability to cut the time it takes for a check to clear from days to hours.
Check 21 Act is a United States Federal law and in the month of October,2003 it got enacted.This particular act was enacted by the US congress and came into effect one year later.Check 21 Act was a revolution at that time as it allowed the user for creation of a digital version of the check-other wise known as check truncation with a bouquet of advantages.
Processes involved in Check 21 Act and implementation
The process to do this involves a pseudo or substitute check. Check 21 Act now allows banks to use this in place of original checks. The technique to make this a reality involves converting the information on the check into an electronic file, which is then sent to the maker’s financial institution for payment. This significantly speeds up the check clearing process from days to hours. The original check can even be destroyed because a substitute check can be made at any time during the process. This image can be used as a proof of payment just like an original check. In fact the checks look almost exactly like original checks except for a slightly reduced image of both the front and back of the original check.
You can expect to see a substitute check if the original check was converted to an electronic file during the payment process and the check turns out to be a bad check due to non-sufficient funds in the payee’s account. The bad check you receive will actually be the substitute check. You may also receive a substitute check if you request a copy of one of your own paid checks provided that check was converted to an electronic file during the payment process. Don’t worry the Check 21 law allows you to use the substitute check the same way as if it were the original check involved in the initial transaction or payment.
Steps and procedures
However, don’t expect a rapid rollout of electronic file conversion of checks right away. First financial establishments (such as banks and credit unions) or not required to change from paper to substitute checks due to the large upfront cost associated with investing in the equipment needed to comply with Check 21 Act. Don’t worry though many financial institutions will gradually switch to the new system since it will save money over time on the transporting of checks, improve security and mitigate the loss associated with check fraud.
The consumers affected the most by this new change in check clearing will be those individuals that write a check one day and then attempt to transfer money into the account the next day or write a check a day earlier then they are paid via direct deposit. This method of floating money won’t be as easy to duplicate since in many cases electronic checks can clear in a little as 4 hours. So although some consumers may feel an initial wake up call many will embrace the new act simply based on the fact that it should curtail the fraudulent activity currently seen in the financial industry.
If there’s ever been a question of whether or not you’re ready for a better solution for accepting checks as payment for your business, the answer is probably a resounding “yes.” Dealing with checks can be a real hassle; paper checks can get lost or damaged, making it difficult to retrieve payment. If you submit a paper check and the funds aren’t available in the customer’s account, you may also be hit with returned check fees from your own financial institution. But a quality processors can change all that, they make it possible for you to take the hassle out of collecting on checks presented to your business.
Why Check 21 Act?
This type of processing is made possible by Check 21 Act, the Check Clearing for the 21st Century . This law was passed by Congress to make it possible for businesses to use Check 21 processors to create digital copies of checks, called “substitute checks” and present them for payment electronically. Going the digital route can save your business a lot of time and money, both of which are valuable to any business. Getting set up with Check 21 processors is actually a simple process, and most businesses would agree that it’s totally worth the effort.
Enabling your website, or even your brick-and-mortar store with Check 21 processing provides both you and your customer with many benefits. Check 21 Act is a fairly new law that allows for paper checks to be processed electronically. With this process, a check is converted to an electronic file capable of being accepted by the majority of banks. Therefore, the actual hard copy of the check no longer needs to be received by the bank. This means that instead of the traditional canceled check, a substitute check is returned to the customer. This substitute check comes in either the form of a copy of the electronic check sent through the mail or a file that is able to be viewed online through the bank’s website.
Checks are still a very popular payment method and as millions of Americans still do not have a credit card, it makes sense to integrate this option into your business practices. If using the internet for conducting business transactions, offering Check 21 processing will allow you to take full advantage of the plethora of potential customers online available to you. Expanding your variety of payment methods results in more customers and, therefore, more money.
How does Check 21 Act protects customers?
The Check 21 law protects the consumer against fraudulent check charges. This provides security that, up until recently, could only be achieved with charge cards. Also, as Check 21 processing involves converting the customer’s check information into an electronic file, there is a decreased chance of the check being lost or getting into the wrong hands. This benefits both you and the client as there are no check-canceling fees for them and no delay in payment for you. Additionally, keeping track of these payments is easier than with traditional check payment methods. The need to keep tabs on checks received throughout the day and then having to bring them to the bank is eliminated. Instead, as the checks have been routed electronically, they arrive at the bank almost instantaneously. These electronic files are now available for you to view online and can be referred to as needed for accounting purposes.
Integrating Check 21 processing allows funds to be withdrawn from the customer’s account quickly, and thus deposited into your business account, faster. Checks can be cleared as quickly as the same day or overnight. This means that both you and your customer can stay on top of accurately balancing account information. Because of increased security, more streamlined bookkeeping, and faster access to funds, Check 21 will forever change the way we conduct business online.