Magazine Article | May 1, 2005

Check Into Check 21

Source: Field Technologies Magazine

Check 21 isn't limited to the banking world. The act can have a significant impact on the way your business processes payments.

Integrated Solutions, May 2005
Personally, I think the debit card is one of the best inventions of the last 20 years. I use it almost exclusively for retail purchases and for paying bills online. I rarely carry cash anymore, and I write checks even less frequently. Where convenient payment options

like these are available, it amazes me why anyone would still choose to write a check. It seems to me like an unnecessary and time-consuming exercise. However, people still write checks in droves. A recent study by the Federal Reserve estimates that 50 billion checks are written each year in the United States, accounting for nearly 80% of the total payments received by businesses.

This statistic is not good news for the business community, considering that checks are one of the most costly payments to process. The same Federal Reserve study suggests close to half of the $225 billion spent annually on payment processing could be saved if all paper check payments were switched over to electronic forms. Granted, demanding all businesses to develop electronic payment options and convincing American citizens to abandon their checkbooks is a futile effort. However, Check 21 (The Check Clearing for the 21st Century Act) encourages a move in this direction without the major change of eliminating checks altogether. Astute businesses can take advantage of the opportunities provided by this act to improve their payment processing efficiencies and cut costs.

Check 21 allows for an electronic image of a paper check's front and back, known as a substitute check or IRD (image replacement document), to serve as the legal equivalent of the paper original for proof of payment. Your business can gain several benefits simply by imaging the checks that enter your accounts receivable (AR) department. First, you will no longer need to pay someone to carry the checks to a bank or pick up checks each day. Second, you will be able to deposit payments to a bank later in the day and still get them entered into your account on that date. Typically, a bank will only ensure that paper checks received by 3 p.m. are entered into the system the same day. By receiving check images, the bank will be able to extend that cutoff point by three hours or more because your business is actually imaging and encoding the check -- work that a bank does with paper checks. Third, your business may be able to reduce the number of banks it works with or accounts it maintains. For example, geographic constraints may have you working with several different banks or local branches to make timely deposits. Sending images electronically eliminates the need to work with a bank close to each office. This can substantially reduce the costs of banking and allows for improved cash management.

If you choose to start imaging checks to take advantage of the benefits Check 21 offers, don't stop there. Look into adding new forms processing technologies that can help you automate check and invoice processing. These technologies use OCR (optical character recognition), ICR (intelligent character recognition), and IDR (intelligent document recognition) to capture data from both the payment advice and the check and automatically post the payment to your organization's AR system. Processing paper payments using manual data entry can cost your business as much as $20 per payment. This cost can be reduced to less than $4 per payment through automation. Savings such as these may further justify an investment in imaging and forms processing technologies for your business.