What’s Check 21 mean to your business?
Safer, quicker, more efficient check processing

Companies today routinely send e-mail and engage in e-commerce. Now, they should welcome the latest e-vention—e-payments processing, if you will—because it’ll make receiving and depositing their money simpler, faster and safer.

The movement towards electronic and away from paper check transactions is nothing new. It dates back more than 30 years to the debut of Direct Deposit. But now it’s become established by a newly-enacted federal law called the Check-Clearing Act for the 21st Century, better known as Check 21. Effective as of October 28, Check 21 requires banks to accept micro-encoded substitute checks created from digitized images of original paper checks. It’s a common-sense step in the evolution towards a paperless society, and it was taken to accelerate and improve the efficiency and reliability of the nation’s whole payments system.

The process now

Banks across the U.S. have taken steps to move into Check 21 as seamlessly as possible, and SunTrust Bank’s own preparations have made it ready to exchange check images with other banks from Day 1 last month. Since Check 21 is off and running, businesses ought to know how it will affect them and how it can help them so that they can keep pace with the changes.

First off, no businesses have to do anything at this point. They just keep issuing checks like they’ve been doing all along. But they may notice the change when they get back their bank statements, since many of them won’t get back paper originals at all.

Here’s why. Banks will have three options for clearing payments under Check 21. They can still use paper checks. They can give businesses what many already receive: monthly statements showing imaged copies of the check or check data, minus the cancelled paper checks. Or they can return the substitute checks, which are also known as Image Replacement Documents (IRDs). Banks sending only the IRDs back will have image exchange agreements with the depositing banks who receive the paper checks in the first place.

Companies, like the banks, have to accept IRDs, too, even if they don’t want to. “They don’t have the option to tell their banks not to convert their original checks to substitute checks,” explains Lee Crocker, SunTrust’s Senior Vice President of Enterprise Information Services.

If a business doesn’t want to be taken by surprise, it should be asking its bank now which method it will be using.

Benefits now, benefits later

The immediate opportunity for commercial clients is that they can enter into arrangements with their banks allowing those businesses to make deposits in digitized form. “That’s where you’ll begin to see real innovation in terms of the solutions banks offer their business clients,” observes David Fuller, Senior Vice President of Treasury Management at SunTrust. ”Many of them will find it beneficial to scan the checks they receive at their own offices and then upload them in digitized form to their banks.”

This has several key benefits for corporations: it speeds up check collection; it reduces the time and expense needed to send deposits; and it eliminates the need for their branch offices to have local bank accounts. That lets them consolidate their outlying banking relationships in order to make deposits.

Check 21 makes it easier to conduct international business, too. Overseas companies that receive checks can set up U.S. bank accounts and deposit them immediately through digitized check capture. That helps U.S. firms with foreign operations as well as foreign firms that get U.S.-denominated checks drawn on U.S. banks.

Less Fraud, More Security

From a security standpoint, business transactions will be safer because fewer hands will touch fewer checks in the validation process. Banks can better protect their clients since it’ll be harder, at least up front, for con artists to defraud the system.

Cathy Towles, SunTrust’s Deposit Line Product Manager for Business Accounts, believes fraud will decrease under Check 21 at first because reference recognition technology will let banks digitally compare check signatures against those on signature cards. “It will also give banks a tool to verify the payee name on a check and then send a corresponding check issue file to the bank cashing the check,” she says.

This doesn’t mean that Check 21 will make check-clearing fraud-proof. Criminal minds can find ways to scam any new technology. Nevertheless, Check 21 gives banks the ability to spot and respond to fraud more quickly than ever.

What the future holds

How quickly electronic check processing and IRDs become universal depends upon how quickly banks respond to Check 21 in working with imaged documents. Only when this becomes the norm, down the road, will businesses fully reap the benefits of Check 21: more time to make deposits; fewer check processing costs; less fraud-related loss from bogus checks; better use of storage space as paper check volumes drop; and less vulnerability to weather- and transportation-related check posting delays.

The best thing businesses can do to anticipate that future is think about how they want to make and accept payments in the long run. And, they should understand that the eventual phasing out of all paper checks is both inevitable and practical. “What companies need to ask themselves is, ‘Do we really need the check once we’ve received it?” Fuller suggests. “The answer is no. If they get into a dispute with a client who says they didn’t received the check, they can go into an image archive and have a substitute check made, if that’s necessary.”