A Guide to Automated Check Processing
While many merchants are moving towards the use of credit cards and debit cards, check payments still play a large role in many industries. When looking to accept payments, many merchants will opt to accept check payments in order to either appease their clients or to ensure the safe transfer of funds. Either way, there are different ways to automate the processing of check payments through the automated clearing house.
What is an Automated Clearing House?
The automated clearing house is a system used by payment processors to handle financial transactions in bulk. Processing a check payment involves the use of the Internet, a check scanner, and the ACH software. Many believe ACH processing is the best way to accept checks.
How it Works
1. Retailer or Merchant Initiation: Regarded as the originator, the merchant is the party that swipes the check through the processor to initiate the transaction. Upon the purchasers consent, the merchant’s financial institute is instructed to create a claim to the purchaser’s institution.
2. Retailer’s Financial Institution: When the retailer swipes the check through the scanner, they are authorizing their bank to withdraw the funds out of the purchaser’s bank account. The funds are then debited and posted to the purchaser’s account.
3. ACH Software: Automated Clearing House software tracks and reports electronic transactions. The transactions are sent to the various financial destinations.
4. Federal Reserve: The Federal Reserve acts as the intermediary between the different financial institutions. It intercepts the transaction, and sends the information to both financial institutions. All transactions are then reported online or on the individual financial statements.
Benefits of Using ACH Processing
There are many benefits for businesses looking to use the automated clearing house for the check processing.
1) Simplicity of Use – The process involves scanning the personal or business checks through a piece of hardware and using the software to finish the transaction. This may require the customer to sign at the register.
2) Security – Check information is being digitizes and sent electronically to the financial institution through various levels of encryption.
3) Immediate Processing – By processing the transaction immediately, you can be sure that there are funds available to cover the transaction. It also allows you to receive payments into your account quickly and efficiently.
4) Risk Management – You’ll be able to reduce the amount of fraud and financial issues you face when accepting payments from your customers. This significantly reduces the odds of a check coming back returned.