Accounts Receivable Conversion
is the process of converting paper checks into electronic payments.
Account Receivable Conversion Details
Large and profitable companies do not process checks like a bank. They use an efficient but expensive process for paper checking. Checks are scanned electronically using an Automated Clearing House (ACH) and then converted into electronic payments. There are many consumer payments, but Account Receivable Conversion cannot process all of them.
Payments eligible for the ARC processing method:
- Fixed amount, regularly recurring payments.
- Auto and other loans, mortgage payments, rent payments.
- The variable amount, regularly recurring payments.
- Utility bills, state and local taxes, credit card bills.
- A variable amount, variable frequency payments.
- Mail-order purchases, television home shopping purchases, donations.
- Variable amount, variable frequency payments received in person but held until the end of the day for batch processing.
- Department store payment, entertainment facility fee, property management rent collection.
Features checks must have to be ARC processed:
- The check must contain a pre-printed serial number.
- The check must draw from a consumer account.
- The check must be entirely written and signed by the recipient.
- Checks must be 180 days or less from the date of transfer to RDFI.
Payment checks not eligible for ARC:
- Cashier's and treasurer's checks.
- Travelers' checks.
- Conversion checks are drawn on credit card accounts.
- Money orders.
- Third-party items corporate checks.
- Drafts are drawn on federal, state, or local governments.
- Items are payable in a foreign currency.
- Unsigned items.
Real-Life Example of Accounts Receivable Conversion (ARC)
The NACH (National Automated Clearing House) developed operating rules that ACH follows. ACH processed 21.5 billion transactions worth more than $46.8 trillion in 2017. Statistics confirm that a good number of companies are using ACH for paper checks.
On March 15, 2002, the NACH ARC Rules came into force, enabling such check exchanges to create a new standard entry class code. NACH announced that they had transferred more than 24 million checks to the ARC in 2002 and that about 19 million transactions had taken place in the first quarter of 2003. In three months, ARC transactions are showing an increase of 156%.
Today, most of the monetary work in the banking sector is computer-based. Earlier, banks left checks in the lockbox of banks awaiting manual processing, which is time-consuming. Thanks to advances in technology, it has influenced a positive development in the banking sector, such as creating a financial product called a convertible account. Large companies can quickly scan paper checks and convert them into electronic payments via ACH with these accounts.
Significance of Accountable Receivable Conversion (ARC)
- In-line Check Processing: ARC checks are processed early in the morning before the first bank opens. Available funds are put into electronic transactions before performing the traditional paper check.
- Reducing Labor Costs through Automation: Changing paper checks can dramatically reduce labor costs and allow automated scanning to be performed with state-of-the-art technologies. Check images are stored securely and efficiently in the cloud on secure servers.
- Simple Interface with Easy Operation: For example, working with Check Care, a type of ACH software, log into the Gateway, slip the check into Imager, and type in the username and dollar amount to commit the transaction.
Returned check item notifications are issued permanently for immediate refund in daily submission with a refunded item fee. Of course, this can also be scheduled. The electronic check is sent to the recipient's banking institution, and the funds are transferred to the client's bank. The ARC application will provide a file used to update your accounts' payment information when the transaction has been completed.
The ARC helps beginners avoid the time-consuming processing of paper checks, bank deposits, and data entry. In most cases, checks are submitted electronically before the paper check is processed at the bank, giving you easy access to valuable operating resources.