Business Check Conversions Now Allowed

Rudet Fountain, National Sales Manager for American Check Management (ACM) recently informed NACM of recent changes in the management of electronic transfer of funds that allows check conversions for business checks. These changes were implemented on September 15 by NACHA, known as The Electronics Payment Association. NACHA, according to its website, is a non-profit association that represents more than 11,000 financial institutions that “develops operating rules and business practices for the Automated Clearing House (ACH) Network and for electronic payments in the areas of Internet commerce, electronic bill and invoice presentment and payment (EBPP, EIPP), e-checks, financial electronic data interchange (EDI), international payments, and electronic benefits services (EBS).”

Before this recent change, Fountain said check conversions were only allowed for consumer checks. Check conversion, he noted, “Let the paper check go away—that check is transmitted as a digital electronic transaction.” He said the process is part of the Federal governments commitment in the 1990s to move to a paperless system of monetary exchange. When a consumer pays for a product at the point of sale by check, the merchant can scan the check into a computer system and send the routing and other financial information through the ACH network so that money is electronically transferred from the consumer’s bank to the merchant’s bank. The check is then endorsed by the merchant and either immediately given back to the consumer for his or her records or kept by the merchant.

Fountain said that one of the reasons businesses were not included in check conversions was that it was not easy to determine at the point of sale if a person writing the business check was authorized to give consent for conversion. However, the newly implemented changes mark a shift in the default position and allows for most business checks to be converted. Businesses, however, are given an opportunity to opt out of the check conversion process now that it applies to them. They can do so by either communicating verbally or by writing to a merchant, saying that they don’t want to be involved in check conversion; or they can indicate on their checks that they don’t participate in check conversion. To prevent business checks from conversion into ACH transactions (electronic payments), Fountain said you must use business checks that contain an appropriate notation in the “auxiliary on-us field” on the far left of the business check’s MICR Line. This line, on the bottom of the check, typically contains such data fields as the account and check routing or transit numbers.

According to NACHA guidelines, some Business Checks are ineligible for conversion. Those are:

1. Business checks that are printed on approximately 8 to 9 inch check stock AND utilize the auxiliary on-us field located on the far left of the check are ineligible for conversion.
2. Checks greater than $25,000 are NOT eligible for conversion under any circumstances;
3. Third Party checks or sharedrafts;
4. Demand drafts and third-party drafts that do not contain the signature of the receiver;
5. Checks provided by a credit card issuer for the purpose of accessing a credit account or checks drawn on home equity lines of credit;
6. Checks drawn on an investment company as defined in the Investment Company Act of 1940;
7. Obligations of a financial institution (e.g., travelers checks, cashier’s checks, official checks, money orders, etc);
8. Checks drawn on the U.S. Treasury, a Federal Reserve Bank, or a Federal Home Loan Bank;
9. Checks drawn on a state or local government that are not payable through or at a Participating DFI; or
10. Checks or sharedrafts payable in a medium other than United States currency.

Fountain said that ACM is considering offering services that would facilitate business-to-business check conversion that is made possible by this and other legislation such as Check 21. ACM already offers a variety of services to credit departments around the country; including, Payment by Phone, Online Bill Payment, Check Guarantee and Credit Card Merchant Services. If additional information is desired, Fountain may be contacted at rudet@acmeft.net.

Source: NACM and American Check Management

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