In an increasingly competitive business environment, efficiency and optimized cash flow are critical.While paper checks will never disappear entirely, electronic payments are quickly becoming the payment method of choice as faster,more secure, and more convenient ways to accept payments.
In just the past year between the first quarter of 2003 and 2004 the volume of checks converted to electronic payments has grown over 130 percent.
And we'll see this trend continue.
To date, the bulk of e-payments have been limited to ACH payments (that is, checks other than consumer checks).
With the passage of The Check Clearing for the 21st Century Act, better known as "Check 21,"we'll see a whole host of new e-payment options open up through the use of check imaging.
Check 21 provides an electronic means for clearing checks ineligible for ACH.
Effective on Oct.
28, Check 21 legalizes the substitute check, a replacement check printed from an electronic image of the original.
The substitute check becomes the legal equivalent of the original, allowing a bank to create or accept substitute checks without first obtaining the consent of the check writer.
While simple in concept, this change has dramatic ramifications.
Sending a check image that can be printed as a substitute check for settlement on the receiving end cuts days off the settlement process and reduces the costs and risks of physically transporting checks.
Check 21 propels the check imaging processes forward and lays the groundwork for a national image exchange infrastructure that will vastly improve the overall efficiency of our national payment system.
As Check 21 takes effect, it's important for you to know what the new law will mean to your treasury operations and what you can do to leverage this new law to your advantage.
First, let's set the record straight with regards to Check 21, what is fiction and what is fact? Fiction Checks, as we know them today, will go away.
Fact Checks most definitely will not go away.
More than 40 billion paper checks were processed in 2003.
Industry experts forecast an annual decline in check volumes of 3 percent to 5 percent per year and estimate that 35 billion paper checks will be written in the year 2010.
Fiction Companies who receive their checks back will not receive the original checks.
Fact Presentment of original checks will continue, particularly for locally drawn and low-dollar items.
You may receive a combination of original and substitute checks and check images.
If you are receiving your paper checks back today, now may be the time to question if you need them when you can view check images online.
Fiction Float will disappear.
Fact As paper checks are replaced by image files and transported electronically to a location near the paying bank, where they are printed as a substitute check, check processing will speed up.
This will reduce float significantly but not eliminate it entirely.
So what does this all mean to you and your business? It means you should consider some initial steps to prepare:
* Ensure that your current check stock produces high quality images.
Ask your banker for image quality standards.
* Familiarize your staff with substitute checks, since they may see them later this year.
* If you are float sensitive, monitor your disbursement float and be prepared for potential reductions in float time.
* Evaluate your need for physical check return.
Consider using an image delivery option and requesting an indemnified copy from the bank only when you need it.
Check 21 means a host of benefits to you:
* Faster access to your funds
* Fewer trips to the bank; fewer transportation costs, risks, delays
* Reduced fraud as returns come back quicker
* Returned item images can be viewed online And as a national imaging infrastructure emerges, so will a growing number of electronic payment solutions.
You'll be able to truncate the checks you collect and transmit the digital images electronically to your depository bank - right from your desktop or at the point of purchase.
In the end, Check 21 is designed to make the U.S.
payments system more reliable and efficient.
Over time it could reduce your costs, improve your efficiency in check collections, and make your funds availability more predictable.
Therefore, if you haven't already, now is a good time to consider moving your payments into the electronic age.
Ask your banker how to remove paper from your payables and receivables systems and processes today.
Whether you are processing your payments by issuing checks, electronic payments, or somewhere in between, your banker can find the right solution for your business.
Chad A.
Osorno is the senior vice president and manager of Wells Fargo's Business Banking Team in Nevada.
Based in Reno, he leads a team of business bankers who serve the financial services needs of middle market businesses throughout the state.
He can be reached at 775-689-6140.
