Improving the efficiency of payment processing
Check 21, or The Check Clearing for the 21st Century Act, became law on October 28, 2004, and helped increase the speed that checks clear in the U.S. It also lowered check processing clearing costs. Check 21 was proposed by the Federal Reserve in the wake of the September 11th, 2001 terrorist attacks to keep funds flowing even when conventional air and ground transportation was disrupted.
How Check 21 impacted your business
Check 21 did not require you change your practices regarding writing, accepting or depositing checks. What it did was provide opportunities to streamline some of these processes.
- Substitute checks: When you request copies of your checks, or view them online, you will start to see substitute checks or copies of substitute checks. A substitute check is the legal equivalent of an original, paper check. When you view your check images, you will see original and substitute check images. As more banks integrate substitute checks into their processes, they will become more common.
- Check clearing & float: Because original checks don't need to be physically transferred under the provisions of Check 21, some check transactions will clear faster. As a result, float is reduced as the time to settle transactions between banks decreases. This provides businesses with faster access to money deposited in their accounts.
- Returned check notification & fraud: Because some checks will clear faster, businesses will know more quickly if a check will be returned. As a result, collection efforts can begin sooner and fraudulent schemes can be detected faster as well.
For more information regarding Check 21, please contact an SNB Treasury Management Representative or call SNB's Business Client Services at 1.888.762.4762.