Check 21: Why Your Checks are Clearing Faster than Ever

by | Accounting and Cash Management

Bank checking accounts have gone digital. Thanks to the “Check Clearing for the 21st Century Act,” the rules of the game have changed. Here’s what to look out for.

It’s like the Jetsons took over the banking business – at least when it comes to your checking account. In case you didn’t know, your checks have gone digital. Your paper checks are going the way of…well, paper!

“Check 21” (or the Check Clearing for the 21st Century Act), was implemented by Congress, in part in response to the September 11, 2001 attacks that paralyzed the nation’s financial system. Planes stranded on both coasts could not deliver physical paper checks across the country, thus slowing payments and tying-up cash flow.

The law – Check 21 – allows the recipient of the original paper check to create a digital version – or substitute check – which means the physical check is no longer needed. This allows funds to be transferred more quickly. Very quickly.

Sometimes that’s good, and sometimes that’s bad. Here’s what you need to know.

The Need for Speed: Customer Impact

It’s mostly about speed. Speed doesn’t always kill, but it can certainly complicate matters.

It’s hard enough to manage cash flow, keep track of your business check book, and track receivables without worrying about the uncertainties of when payments will clear and when deposits will be credited.

Here are the guidelines for dealing with Check 21:

  • Remember how you used to “float” a check? That’s where you wrote a check, but figured you had a few days to cover the payment. Well, keep remembering it, but don’t do it anymore. Generally speaking, expect the checks you write to clear faster than ever before. And to the question “Can a check be cleared the same day?” the answer is yes, many checks will clear the same day they are deposited.
  • But here’s the catch: your deposited checks won’t clear more quickly. Banks can still play the float game, but you’d better not. Bottom line – Don’t write a check unless the funds are already in your account.
  • You’ve probably seen the commercials featuring the smart phone apps that let you snap a photo of a check, and immediately have it deposited. It’s for real. Under Check 21, it is now legal for to use a mobile phone, or a computer scanner, to copy images of checks and have them electronically deposited. This is convenient and maybe more secure, as you may never misplace or lose another check.

But again, don’t expect the bank to do you any favors! Funds will leave your account faster than they come in. Even with Check 21 in place, out-of-town checks you deposit to your company account can take additional days to be credited. Wire transfers or direct deposits are still the fastest way to ensure funds make it to your account quickly. All commercial banks offer this service, and the fees are minimal.

With the current banking rules, effective cash flow management takes on an even more important role.

Avoid bounced check fees and manage your cash flow the right way.

Many business operators have turned to MP Star Financial’s invoice factoring programs for assistance. Invoice factoring, a process that gives your company fast access to its receivables – the same day in most cases — can be a very effective tool for making cash flow more predictable, managing payments, and obtaining funds for special projects.

MP Star Financial’s invoice factoring programs can get you paid faster! Call for more information about invoice factoring. (800) 833-3765, extension 150 or use our online factoring application.

Let's Talk

For more specifics about invoice factoring, visit MP Star Financial online or schedule time to talk with a representative. Don’t wait 30 to 45 days for payment. MP Star can get funds to your account faster. Call MP Star Financial today at (877) 292-1904, extension 150.