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Check 21, which beginning last fall made substitute checks or image replacement documents legally equivalent to original paper checks, has opened a new era for electronic payments. As a result, many applications and payment options being offered now could have a strategic impact on your business.
One such application is remote deposit capture, the practice of converting paper deposits into electronic images of checks at a business location and transmitting them to a bank for deposit and clearing. Once banks receive these electronic deposits, they are now able to choose how the images will clear—either as substitute checks, through image exchange or by Accounts Receivable Conversion (ARC) using the Automated Clearing House (ACH) payments network where applicable. This process, also known as “dynamic clearing,” is rapidly becoming the method of choice in check payments processing.
Ask Strategic Questions
Deciding to adopt remote deposit capture involves many considerations. You must make strategic assessments regarding the typical location and volume of checks received, the value of those checks, the location of the paying bank, the ability of the company to properly store and destroy original paper checks, the development and implementation of internal controls and sorting procedures, and the nature of the hardware and software investment necessary.
Some other questions to ask when considering the suitability of remote deposit capture for your company include:
- If your business has numerous locations across the country, can standard procedures be applied to each location where checks will be scanned?
- Are the human resources available to devote to the daily task of scanning?
- Would improved funds availability allow your business to grow in other areas?
Companies also must consider their relationships with banking partners by asking questions such as:
- Would concentrating funds with one bank yield other advantages?
- Is my business ready to agree to the contract and warranties required to process check payments electronically?
- Will the change in my risk profile alter the nature of my banking relationships?
The industry warranties for Check 21 state that a substitute check must meet all the requirements for legal equivalence (as specified in the legislation). They further state that a bank will not receive presentment or return of the substitute check, the original check, or a copy or other paper or electronic version of the substitute check or the original check that has already been paid. Deutsche Bank will adhere to the same warranties as mandated by Check 21. However, in order for the process to work efficiently, interoperability is critical. Hence other banks must also be ready and must adhere to the rules.
Cost/Benefit Analysis
As with any strategic business decision, the advantages may seem clear yet must be weighed in a business case cost/benefit analysis.
If your business is geographically diverse, remote capture can remove most distance challenges that may currently delay funds availability. Since items enter the payment stream more quickly, funds are available faster as well. Scanning checks at your location also reduces mail float on your incoming payments and removes transportation risks and costs. Because more funds are available faster, you can more effectively manage cash flow, define decision processes and optimize daily balances for more predictable working capital.
According to Bank Administration Institute, there are industry reports of bank clients increasing funds availability by up to 42% by utilizing remote image capture.
With an integrated system that allows straight-through processing to your bank, you can extend deposit deadlines, improve return item timeframes, and implement an image archive to leverage additional value-added services. The robustness of such a system reduces operational risks both for you and your bank.
Adopting remote capture may also reduce or consolidate bank fees.
To engage in remote capture, a company typically needs a personal computer, scanner, software with image quality detection and the Internet or other transmission protocol with encryption security. While this initial investment in technology is necessary, banks offer several ways to reduce the hard dollar investment required. When an outright purchase of hardware and software is cost prohibitive, banks can negotiate a lease or rent-to-own agreement or recommend a third party managed services solution.
Broader Implications
The implications for this type of remote deposit capability are vast. Banking transactions can be conducted in a truly “virtual” fashion—in any location at any time of day. Businesses can ensure continuity of deposit services 24x7, even in the wake of a regional disaster such as last year’s Gulf Coast hurricanes. Companies also can operate anywhere in the country or in the world and still maintain a deposit relationship with their primary banking partner.
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