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Guide to Accounts Receivable Conversion

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Last editedDec 20212 min read

If you’re making payments via the Automated Clearing House (ACH) network, then you might have come across the term accounts receivable conversion (ARC). Essentially, there are many different ways that you can make a payment through the ACH network, and ARC relates to the process of scanning paper checks and converting these into electronic payments.

ACH payments are great as they offer a high level of security thanks to encryption and tokenization. What’s more, they’re fast to process and can ensure you automatically receive payments from your clients. That’s why GoCardless uses ACH debits to help you get paid on time. Keep reading to find out more about ACH payments and the importance of ARC for processing paper checks.

What are ACH payments?

Before getting into accounts receivable check conversion, it’s important to first define what an ACH payment is. In a nutshell, this refers to payments that are made through the Automatic Clearing House network, which is a network that is used to quickly and securely transfer funds between accounts across the United States.

There are two types of ACH payments: ACH credits and ACH debits. With ACH credits the funds are pushed into an account, and funds are pulled out of an account for ACH debits.

GoCardless offers Direct Debit for business owners collecting payments. This pull-based payment method allows you to get paid automatically on the due date. You can also integrate the software with over 200 partners, including major software platforms such as Xero and Salesforce.

What is accounts receivable conversion?

Accounts receivable conversion (ARC) is a way of processing paper checks and converting these into an electronic payment that is made through the ACH network. In particular, this relates to checks that are received in payment for an account receivable, which is balance that is due for goods or services that have already been delivered but have not yet been paid for by the consumer.

Since the financial industry has become largely computerized, it was necessary to find a way to process traditional paper checks electronically. Since being created in 2001, accounts receivable conversion has become the norm for large payment processors that are dealing with paper checks.

What are the advantages of accounts receivable conversion?

There are various advantages to using accounts receivable check conversion. First of all, it can reduce the time that you need to wait for a check to be transported and processed, as there is no need to physically transport the check by post or other means. This also helps you to cut down on the costs of delivery.

What’s more, authorization from the customer is simple to acquire. In general, customers will receive a notification that their account will be debited upon receiving the item that they are being charged for.

It’s really important for businesses to receive payments for accounts receivable as this can have a positive impact on cash flow. When you receive these payments, you have more cash available for other necessary business processes, giving you more freedom in how you plan and run your business.

Should your company use accounts receivable conversion?

Given the above advantages, it seems like an obvious choice to use ARC for processing paper checks. Adapting to this new process can be challenging, however. If you’re already using a retail lockbox provider, then it’s a good idea to discuss your alternatives with them and assess whether you should use a different provider. You should also think about your customers and notify them prior to any payments made by ARC.

In addition, there are certain regulations that you need to comply with when using accounts receivable check conversion. The check images must be kept for two years after use, and the physical check itself must be destroyed within 14 days of the settlement date to avoid them being processed twice.

Despite the difficulties of moving to this method, the advantages of using ARC are significant, making it a great option for most companies.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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