With the advent of Check 21, you might want to consider a new way of handling the checks you receive from your customers. Check 21 is short for the “Check Clearing for the 21st Century Act” which went into effect on Oct. 28, 2004. Instead of checks physically being taken from your facility to your bank, through a Federal Reserve bank, to your customer’s bank and then to the customer, they only leave after being electronically processed and eventually shredded.
“With the rollout of Check 21, there are significant savings and efficiency benefits to financial institutions and commercial customers, with the use of merchant capture,” says Tracy L. Marshall, vice president of treasury management at ViewPoint Bank in Plano. “By working closely with your business banker or treasury management professional, you can determine if merchant capture is right for your business.”
Smart Business talked with Marshall to gain more insight on this process.
What is merchant capture?
Merchant capture is a system between a merchant and his bank whereby the merchant captures or scans his customer’s checks and makes his deposit by transmitting the MICR information and the checks image to his bank electronically. The electronic transmission continues through to the customer’s bank for the settlement of funds. This process eliminates the need for the paper check to physically move from place to place. The check writer may receive a substitute check from his bank, or he may see a copy of a substitute check on his account statement.
What are the benefits of merchant capture?
It can be more cost-effective for you and your bank. The scanning process reduces the amount of time previously required for handling checks. Also, you don’t have to worry about getting the checks from your location to the bank before closing time or to the night deposit, which you may consider a safety issue.
Another benefit is quicker availability of deposited funds. In most cases, you can negotiate with your bank a next-day or same-day availability, whereas previously, the funds may not have been available for three to five days or longer in some cases. If you are tightly managing your cash flow, merchant capture could play a huge role by providing access to funds quicker.
Another benefit is to companies with multiple locations, because they can process checks from all locations into one central bank account instead of maintaining local accounts.
Lastly, since the checks remain in your possession until they are destroyed, you have the ability to go back and look at physical checks for research or collection purposes.
What do I need to know as I consider merchant capture?
The first thing is to have a great relationship with your business banker or treasury management professional. He or she can provide a lot of help as you conduct your cost/benefit analysis. Remember to look at all costs involved in your current check-handling process. Include the time spent
and the processing and services fees currently being assessed by your bank. Determine with their help what, if any, savings will be gained by switching to merchant capture. Be sure to factor in the quicker availability of funds and reduced processing time. Usually, the more checks you handle, the more cost benefits will be realized. If you only handle a few checks per week, there will probably not be enough of a savings to make it beneficial. However, if you anticipate significant future growth, it may be beneficial for you to implement now versus later.
Since the checks will be staying with you, it is also imperative that you develop processes and procedures to secure the checks until they are destroyed. You also will need to determine how long you are going to keep the checks and the method to use for item destruction. Many businesses utilize a shredding service or purchase a high-quality, diamond-cut shredder.
Lastly, if you decide to use merchant capture, the law requires that you advise your customers that their checks will be processed electronically.
What equipment do I need for merchant capture?
You will need access to a merchant capture system and a scanner. Here again, a good relationship with your business banker or treasury management professional is key. They can work with you to establish access to their system and recommend a scanner based on the scanning capacity you need. Scanners currently run between $700 and $2,000, depending on the brand and/or scanning capacity. These costs are trending down as more merchants adopt this product and more scanning vendors enter the market.
TRACY L. MARSHALL is vice president of treasury management at ViewPoint Bank in Plano. Reach her at (972) 509-2020 ext. 3682 or email@example.com.