Guide to Check Processing

Checks used to be a standard form of payment used for everything from the weekly groceries to rent and utilities. While writing paper checks has fallen out of favor, electronic check processing is still a useful way to send and receive payments. How does modern check processing work, and is this a good payment option for your business? Here’s what’s involved.  

What does check processing mean?

Also called the clearing process, check processing involves the withdrawal of money from a bank account using a written order or mandate.

When you write a check, you’re authorizing the specified amount of money to be withdrawn from your bank account and given to a recipient. The recipient might keep the funds in their own bank account or choose to cash the check. What’s important to remember is that the check processing procedure is initiated as soon as you write that check. Even if funds haven’t been removed from your account yet, you must act as if they have until the clearing process is complete.

When you receive or deposit a check, it isn’t available for use until it’s gone through the check clearing process. This involves the banks ensuring the money is available and fully cleared for deposit into your own account.

Check processing simply refers to the steps taken along the way as the money is verified, moved, and approved from one end to the other.

What is the check processing procedure?

When a check is deposited into the recipient’s bank, this begins the check processing procedure. The depositing bank contacts the sender’s bank for verification. The sender’s bank will ensure there’s adequate funds in the sender’s account before withdrawing and sending them to the depositing bank.

In the past, this could be a lengthy verification process involving paper files as banks passed physical checks back and forth. To expedite the process, checks are now scanned into the system and digital images sent electronically. Bank staff capture electronic copies of the check images, verifying, processing, and depositing them. With eCheck processing, electronic checks are authorized in real time for a more secure, and speedy, transaction.

A US-based initiative to further streamline check processing is the Check 21 program, which allows banks to accept checks either in person or remotely. In all cases, the Automated Clearing House (ACH) network is used to transfer funds from one bank to another as checks are verified and processed. 

What is a standard check processing time?

Check processing times used to be quite lengthy. When sending a check, you could expect it to take a week or longer to be deposited into the recipient’s account. However, today’s digitized checks typically take about three business days for processing. This is the same as any other ACH transfer.

It’s possible that check processing times will be even speedier going forward. Nacha is the organization that administers ACH, and as it pushes for more reliable same day ACH processing this should also increase the speed of check processing accordingly.

How secure is check processing?

Check processing is becoming faster and more convenient thanks to today’s technology. But is it more secure? Scanning physical checks and converting them to digital images helps streamline the whole process and allows banks to run anti-fraud checks. It’s worth using your own payment processor to verify checks and further reduce the risk of fraud, with real-time online authorization.

Automated check verification scans images and signatures, comparing them with driver’s license information and database details. This helps verify your customers and reduce any risk involved with accepting checks as payment.

Not every business will benefit from accepting checks, but if your customer base prefers this payment method, it’s worth finding a secure payment processor with the right verification methods in place.

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.