Different Types of ACH Check Conversion

Check conversion means conversion of paper cheques to digital format. It is simply an easier and faster method of processing cheque payments. It is mainly used in stores and businesses that accept paper checks to pay the bills. The main advantage of using a check conversion is that it speeds up the check clearing processes.

You just need a conversion machine that can read the relevant parts of cheques. There is one more thing that you need to consider while using check conversion. You should give a prior notice to the customer that you will be using electronic check conversion to clear the payment. The clearing happens fast and it could lead to a bounced check if the customer is not informed earlier.

The converted paper cheques are called eChecks or electronic checks. This form of payment clearing system was introduced in 1999. Most of the eCheck systems uses ACH network for the fast processing.

ACH Check Conversion

Automated Clearing Houses or ACH is a secure network that connects different banks to facilitate faster electronic transactions. Direct deposits, some EFTs and debit card payments are made possible by ACH. This ACH network makes the check conversion possible too.

In a typical ACH check conversion your paper cheque is scanned by an eCheck reader machine. The machine converts the relevant info on the check to digital format. This data along with similar data from other cheques are put together as a batch. The store or business forms the ACH originator as it sends the batch requests to the ACH network for processing. They receive the payment once the ACH process gets completed.

ACH check conversion has speeded up the payment processing system without bringing in much change to the existing system. Fewer errors, more security and protection make it impressive to customers also. The faster payment system adds more profit to the business as well as it makes the entire nation’s payment system efficient.

Different Types of ACH check conversion

ACH check conversion is classified into 3 based on when the check conversion happens.

POP (Point of Purchase) – Here the check conversion happens at the point of sale. Right at the moment you give check as the option for payment. The person at the counter will pass the check through a scanning machine and return the void cheque back to you.

BOC (Back Office Coversion) – Here the checks are collected at the counter. But it is passed through the reader only at a later time. It could be in a special room and hence the name Back Office Conversion. The paper cheques are destroyed once the conversion is done.

ARC (Account Receivable Entry) – This is mainly used by billing companies who accepts check by mail. They will read the check and mark it void. Once the payment processing is done the goods are shipped.

With POP, ARC and BOC, the MICR code on the paper check is read by a piece of equipment and the data is used to create an electronic debit transaction which is then batch-processed and passed through the ACH system. And the ACH network treat all the three equally no matter what the origin is.

POP Check Conversion

In Point Of Purchase check conversion, the conversion of paper check to eCheck happens at the point of sale. The cheque reading machines will be installed at each counter of the store. The cheques are run through the readers and are converted to one time electronice debits. The read check is voided and returned back to the customer then and there.

POP Checks must be written at the point of sale. Once the clerk tells you how much you have to pay, you can fill in the details on the cheque and hand it over to the counter as payment. POP Checks must be written for goods or services purchased that day. You just cannot pay for another day’s bill.

POP Checks must be converted to a one-time electronic debit at the cash counter itself. The reader that can scan the checks will be placed at each counter. In POP Checks conversion the paper checks must be voided and immediately returned to the customer. POP Checks should be consumer checks of the value $25,000 or less than that.

The Point of Purchase check conversion was introduced in September 2000. But the implementation took over in a slow pace or rather it was not a huge success. The stores always believed that it is expensive to have a reader at every counter. Also all the people at register need to be trained about using the machine. Moreover each of the checkout clerks has to be taught to properly explain the transaction to the customer.

BOC Check Conversion

Back Office Check Conversion is the ACH conversion used for checks paid at the point of sale just like in a POP conversion. The difference is that the conversion doesn’t happen at the counter but at the back office.

The clerk accepts the check and clear of the bill to the customer. The seller converts them at a centralized location. Please note that voided cheques are not returned back to the customer in BOC.

The stores must put signage or notices saying that the accepted checks will go for an eCheck conversion. It is easier for the customers if they could find an explanation of what eCheck conversion is. By doing so, the customers can opt out of check conversion by requesting at the counter.

By this method, the costs are reduced as number of machines required is less. Also every man at the counter should not be trained and taught about the check conversion.

Back Office Conversion has been in use since March 16, 2007. And it was introduced as an improvement to POP. The experience is transparent to the customer too, as no voided check is returned back to him.

BOC Checks must be consumer checks under $25,000. Checks more than $25,000 should go for normal processing. Please note that BOC also accepts business checks that do not contain the Auxiliary On-Us field.

ARC Check Conversion

Accounts Receivable Conversion (ARC) is the type of ACH transaction used for checks that are received into a remittance location. Duly filled in checks that are signed by the customer could be received through regular mail, a drop box or a central location.

All the checks are converted to one time electronic debits. These are then sent as batches to the ACH network for clearing the payment electronically.

The biller can retain the check till the payment gets processed. Once done he can destroy it. The customers must be notified that cheque payments will be processed electronically prior to accepting the payment. This could be very well printed on the bill or can be sent as a separate statement prior to every payment. By this notification customer has the right to opt out of the check conversion by telling the biller directly.

Most of the ARC checks are used for paying bills. The biller does the conversion. The ARC checks are consumer checks less than $25,000. For business bill payments the check should not contain the Auxiliary On-Us field to be an ARC check.

Accounts Receivable Entries was introduced in March 2002. This method has surely speeded up large scale business payments. The over all transaction happens so fast that the shipping of goods will be done faster.

How do you know which type of ACH check conversion is used?

Now if you want to know which type of ACH conversion happens to your check, you can easily find that out. The ACH checks differ on how the check is accepted by the biller.

If it is at the point of sale then it could be a POP or a BOC but not ARC. For ARC the checks are accepted at a central remittance location.

Now to differentiate between POP and BOC you should see what happens to the check after conversion. If the clerk at the counter returns a void check back to you, then it is a POP. If he doesn’t then it is a BOC.

POP and BOC are used in merchant –consumer transactions. Where as ARC is used for both merchant- consumer as well as business to business transactions.

ACH check conversion has surely accelerated the way check processing happens. The check conversion will only get better as long as the paper cheques are used for making payments.