Now more than ever, retailers are processing customers' checks electronically. Image exchange, or electronic check conversion via the Automated Clearing House (ACH) network, are valid options. Back Office Conversion (BOC), which went into effect on March 16th, provides retailers with a new option in check conversion.
Processing paper checks can be expensive and inefficient. Handling, delivery, collection and fraud lead to increased costs and inefficiencies. Converting checks to electronic payments allows retailers to reduce labor and processing costs, minimize fraud, and get money faster.
Check conversion through the ACH Network is governed by the ACH Rules established by the National Automated Clearing House Association (NACHA). Before BOC, retailers had one option for converting checks received at the point of sale, called Point of Purchase (POP) transactions.
Some retailers have found that POP is not the right option for their business due to its high training and implementation costs. POP requires that checks be converted to ACH transactions at the point of sale.
Retailers must provide equipment to each cashier and ensure that POP requirements are being followed. Businesses may find BOC a better alternative to POP.
With BOC, checks can be converted in a back office setting, rather than at the point of sale. Checks eligible for conversion include consumer and business checks in the amount of $25,000 or less that do not contain the, "Auxiliary On-Us," field.
Customer authorization is required before a check can be converted into a BOC transaction. A retailer obtains authorization by providing a notice that informs customers that the retailer is authorized to use information from the check to make a one time electronic funds transfer from the customers' account.
A copy of the notice must also be provided to customers at the time of the sales transaction. In addition, a telephone number of the retailer's that is answered during normal business hours must be made available for customer inquiries.
Until January 1, 2010, retailers must also notify customers that funds can be withdrawn from a customers' account that same day and that customers will not receive the check back from their bank.
Notices to customers must be posted in a prominent and conspicuous location. A retailer must also provide an opt out option. These include allowing customers to use a different form of payment, such as a credit card.
Retailers must create an electronic image of the check and retain the image for at least two years. The original check must be securely stored until it is destroyed.
In deciding what's best for a particular retail operation, retailers should consider the advantages and disadvantages of BOC before deciding if it is the right method of electronic check conversion for their business. Here are several questions that can help merchants in making the decision:
- Can the merchant safely retain the check until destruction?
- What percentage of the staff will need training?
- Would the cost of staff training be economically viable?
- Is the current staff appropriate to conduct back office conversion?
- How much would the equipment cost?
- Is there enough space available for the required equipment?
- What is the volume of paper checks that the business handles?
Before implementing any check conversion option, retailers need to be aware of requirements imposed by the ACH Rules, as well as applicable federal and state laws. Complying with these laws and the ACH Rules will reduce a retailer's risk of potential liability and fines. It may also prevent a retailer from being an easy target for fraud.
BOC may be a viable alternative for many retailers in the check processing world. NACHA estimates the potential market size for BOC to be one to four billion payments annually by 2010. With BOC, more businesses may now benefit from electronic check conversion.
Information in this article was excerpted and edited from a story on the GlobeSt.RETAIL website.
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