Sunday, April 1, 2007
he shift from paper to electronic checks is nearing a tipping point, as new automated clearing house (ACH) rules make it possible for merchants and other businesses to convert more paper to ACH debits.
The rules, implemented by NACHA – The Electronic Payments Association and effective March 16, apply to businesses that accept check payments – at the POS or manned bill-payment locations. The rules allow those businesses to convert checks to ACH payments using back-office technologies.
That process, known as back-office conversion (BOC), expands on previous iterations of ACH check conversion such as point-of-purchase (POP) and accounts receivable conversion, introduced over the past 10 years.
Check conversion transactions are driving significant ACH network growth. NACHA estimates upward of 3.2 billion payments that started out as checks were converted to ACH payments in 2006 – a 36% increase over 2005.
Like check conversion options previously approved by NACHA, some checks don't qualify for BOC, namely those with auxiliary on-us fields in the MICR lines (indicating the items are business checks) and checks for amounts greater than $25,000.
NACHA's BOC rules also include provisions for notifying customers that their check payments may be converted to ACH debits. And consumers must be allowed to opt out of having their checks converted.
A BOC selling point is that merchants aren't required to return voided checks to consumers, as had been the case with POP. Instead, they retain the checks, then batch-image them later in the day.
Decisioning tools can be used at that time to determine the best way to clear checks – as either electronic check images or ACH debits.
"For many businesses, back-office conversion will enable them to have a single process to electronically deposit all of their check payments," said NACHA President and Chief Executive Officer Elliott McEntee.
NACHA has a new publication to help businesses make the most of BOC. "Guide to Implementing a Back Office Conversion Entry Program" describes economic, operational, legal and risk management issues that may arise when implementing such a solution.
For more information, visit pubs.nacha.org/echeck.html 
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