The world of payment options has evolved over the past decade. Where you were once expected to pay for your merchandise with cash, check, money order, or credit card, there are now many different options when processing payments. Many people prefer to use other, more convenient forms of payment, and have gotten away from paying their bills or shopping with checks. It’s been predicted that by 2018, checks will be entirely obsolete. While many merchants have already stopped accepting checks, others will still accept them as a form of payment only under certain conditional terms.
In 2004, the Check Clearing Act for the 21st Century, or Check21, was passed allowing financial institutions to process checks as electronic forms of payment rather than processing paper checks between banks and through the mail. There are many check processing services available that allows you to use your checking information, without writing an actual check. While some are considered the best check processing services, all of them are important ways of processing payments.
Traditional Method for Processing Checks
Traditionally, checks were hand written by the buyer to the merchant. All of the checks written to the merchant would be accounted for and then shipped to the merchant’s bank. The check would then go to the buyer’s bank, which would then withdraw funds from their account. It would then be deposited into the merchant’s account. This method required the banks to wait during the processing of the check, and would often take several days before the money would be deposited into the merchant’s bank account.
It might be the case that the buyer would have insufficient funds within their account to pay for the merchandise; however, by the time this information came around, the buyer would already be gone. It was up to the merchant to contact the buyer and attempt to get the money back from them. Most often, the merchant was simply out the money for the merchandise.
Check fraud was another issue with this method of check processing. People would steal checkbooks and begin forging them in order to receive money back or buy merchandise from retailers.
Electronic Funds Transfer
Electronic funds transfer was created in attempts to solve the problem of return checks, or check fraud. This method works by converting your hand-written, personal check into an electronic debit. Using the bank information that is printed on your check, the money is then taken from your checking account, much like a debit card. With electronic funds transfer, you are able to deposit the funds from a written check any time of the day.
Automated Clearing House
One type of Electronic Funds Transfer is Automated Clearing House Payments, or ACH. Merchants will scan the personal or business paper check into the system, which will then convert them into electronic payments. If you happen to write a check at a merchant that uses ACH processing, they will likely return your check to you after scanning it into the system. The system is basically removing the account number and routing number off of your check in order to process your payment. Businesses that utilize Automated Clearing House payments will often require the customer to sign at the register as well.
Automated clearing house payments eliminate the responsibility that businesses have to chase down delinquent payments or deal with returned checks. If there are insufficient funds in the customer’s account, the scanner will give you that information before the purchase transaction is finished. ACH is considered by many to be one of the best check processing tools that businesses have today.
Check Processing Through Internet, Phone, and Fax
With internet check processing, businesses can accept checks from customers who are shopping online. From e-Commerce companies to government agencies, many businesses enjoy that internet check processing gives their customers an additional option when making a payment. When the customer enters their check information, the payment is processed instantaneously, funds are verified, and the money is deposited into your account. This all occurs within minutes.
The same option is available to those who are paying over the phone or fax. By simply giving their account and routing number to a representative, they will have the money debited from their account. This option also makes it easy to set up reoccurring payments. If you have a car payment or a credit card bill that you pay every month, you can set up your payments to be automatically debited from your account. This takes the worry out of paying your bills on time.
Direct Deposit Processing
Many companies are requiring their employees to sign up for direct deposit of their paycheck. While businesses are trying to save money and go paperless, they are suspending their paper checks and transmitting paychecks electronically. This is a benefit both to the company and to the employee. Not only does it save the employer time and money, but it allows the employees to have their paycheck funds instantly available to them. Other forms of payment can be directly deposited into your account as well, including social security, tax refunds, and other government benefits. The money is simply deposited into your bank account, and is ready for you instantly.
Online Bill Pay
Due to the ability to pay bills online electronically, there is no need to send checks in the mail to pay for expenses. When paying bills by paper check, it was necessary to plan ahead. Sending your check a week before the deadline was customary, in order to ensure that it made it through the mail and arrived at the proper destination on time. You can easily set up online bill pay with your financial institution. By specifying the day of the month you would like your bill paid, the bank will be able to debit your funds on that day and pay your bill electronically.
With the increasing popularity of check processing through electronic means, many companies are striving to provide this service for online businesses and consumers. This healthy competition allows the business to choose the best check processing companies for their particular needs. It is easy for your business to join the electronic revolution and begin processing your customer’s checks with these alternative methods.