Publications & Resources

August/September 2007
Focus: Technology

Electronic Check Conversion:
If Your Customers Haven’t Asked for It, They Will Soon

By Jack Wilson

Does this sound familiar? Business customers complain about visiting the bank just to deposit checks. True, they might like talking to their friendly bank reps, but the time commitment is extensive. Or, do they worry about the increasing percentage of checks that are returned unpaid and ultimately end up as losses?

Although check use is declining, they haven’t gone the way of the dinosaur just yet. Businesses can’t afford to stop accepting checks for payment. But more and more are aware that new technologies like electronic check conversion can offer more efficient ways to handle check payments from their customers.

Unfortunately, while good customers are increasingly moving to plastic, counterfeit checks and check fraud continue to be on the rise. Many merchants are seeing the proportion of counterfeit checks increasing.

Electronic check conversion (ECC) can serve a variety of business models, each with a different solution. However, what is similar in all the ECC variations is that they convert a physical check into an Automated Clearing House (ACH) item. Thus, the physical check never enters the banking system.

The advantages of this to your business customer are both obvious and subtle:

  • Paper checks are eliminated from the business operation, reducing staff time spent handling them, comparing to register receipts, preparing for deposit, etc. Time is money, and the ECC process saves both for your client.

  • ACH items are processed on the same day they are received – regardless of whether the merchant’s bookkeeper is out sick and can’t make a deposit.

  • In general, ACH items clear more rapidly than paper checks, providing faster cash flow for the merchant.

  • Returned items are identified more promptly than would normally be the case with paper checks. Collection efforts can be started more promptly, which increases the chances those collections will be successful.

The merchant will also appreciate the reduction of check processing fees he or she pays to your bank. While this reduces your fee income, there are compensation opportunities as we’ll discuss below. Moreover, merchants will appreciate your willingness to help improve their businesses. These services give you yet another means of solidifying relationships and reducing attrition.

What’s New in Check Conversion

Check conversion doesn’t just come in vanilla anymore. Various versions, are available to serve various business types.

Retail Businesses:

  • Point of Purchase – This form of ECC requires that the merchant process the check through the check reader at the cash register and return it to the consumer. This is simple and straightforward, and effectively eliminates the merchant’s handling of the paper checks.

  • Back office conversion – This newest form of ECC allows the merchant to keep the check from the consumer, to be scanned in the back room later in the day. The checks are then to be destroyed. The advantage of this process is that it does not require a check scanner/reader at every cash register, but does require careful handling of the checks to avoid jeopardizing customer data

Mail order or service businesses receiving checks in the mail can take advantage of Accounts Receivable Check (ARC), an increasingly popular means of handling checks received this way.

Partnering in Payments

The business of payments can be complex. To offer these services, you will want to partner with a payment processor that can set up your merchants and handle all of the set-up, training and back-room processing. Typically offered as part of an “agent bank” relationship, processors can usually provide sales support in addition to processing. Remember how ECC reduces your bank’s fee income from deposits? Well, with the right partner you can make up for this with residual income. From one-time referral fees to on-going, volume based residuals, the processor should offer various options that fairly compensate you for sharing your client list.

Jack Wilson has been in banking for more than 30 years, and is senior vice president, merchant services, at Electronic Clearing House, Inc., a payment processing company in Camarillo , Calif. He may be reached at t (800) 262-3246, ext 8516, or jwilson@echo-inc.com .

Unauthorized reproduction of all or part of this material without the express written consent of the author is strictly prohibited. All rights reserved.