Q. I understand a new federal law, called “Check 21,” is changing the way banks process checks. How will this law affect me as a retailer who accepts checks?
A. The immediate impact of “Check 21” (short for “Check Clearing for the 21st Century Act”) will be on consumers and financial institutions. Over time, retailers will benefit from it and will have choices to make about how they want to take advantage of Check 21.
The new law, which went into effect on October 28, 2004, allows banks to scan paper checks and capture their images electronically. Banks can then send the images at lightning speed through the clearing system. At the other end of the electronic process, a substitute check can be printed, if necessary.
Retailers are probably already seeing more bounced checks and will continue to see them, at least until consumers realize that “float time” is essentially gone. All checks are likely to clear in 24 hours or less (literally minutes after they are deposited) because banks no longer have to transport the paper check from the bank where it is deposited to the bank from which it was drawn.
Check 21 will also affect retailers’ choices regarding how their stores handle checks. The new law does not require any change to the technologies retailers use to process checks, but retailers will want to weigh the advantages of upgrading to a system that allows more immediate check processing against the expense of the upgrade.
According to Entrepreneur magazine, businesses that receive a large volume of their payments by check may benefit from having a remote deposit terminal at their business location.
This terminal sits at the store’s POS (along with its debit and credit card terminal) and scans a customer’s paper check on the spot, turning it into a substitute check and allowing the clearing process to begin immediately, without the store having to physically deliver the check to a bank. Of course, such technology will involve an investment.
If you already use electronic check conversion to turn a check into a one-time electronic funds transfer, you are already receiving the money sooner, but you don’t have an original check to look at in the case of a dispute.
Some retailers already have check scanners, but until “Check 21” the technology didn’t allow the actual deposit of these checks. With a remote deposit terminal, the retailer will get the money quickly and have access to an electronic image of the check in case of a dispute.
One last point: as a business, you may also be writing checks yourself. Just as your customers don’t have float time, you don’t either. Make sure the money’s in the bank before you write a check for it!
