These are the governing rules covering the NACHA ‘ARC’ type ACH transaction, otherwise known as ‘Accounts Receivable Conversion’. Keep in mind that an ‘ARC’ transaction is processed as a true ACH item – after the check has been scanned…no paper check processing is involved….it is now a ACH/EFT electronic funds transfer transaction.
- ‘ARC’ transactions are ACH electronic debits that are generated after an eligible paper check has been received, scanned and processed by a merchant, under the appropriate NACHA rules.
- ‘ARC’ eligible checks shall include Consumer checks or small format Business checks (w/no ‘on-us’ field), signed by the maker of the check, with a pre-printed serial number, drawn for U.S. dollars of a face value of $25,000 or less, on a U.S. bank. All eligible checks must be received by the merchant by either (1) via mail or messenger (2) drop-box in response to a paper invoice that was previously sent by the merchant or (3) in person for payment of a bill at a manned location.
- The following checks are NOT eligible to be processed under the NACHA ‘ARC’ program:
Any check with a face value over $25,000, large format Business checks (w/an ‘on-us’ field), travelers checks, cashiers checks, ‘official’ checks, money orders, treasury department checks, credit card, home equity or loan disbursement checks, foreign checks, checks without a pre-printed serial number, checks not in US Dollar currency, third party checks, checks that do not have the signature of the maker of the check, and checks drawn on a state or local gov’t that are not payable through a participating bank. Note: Notwithstanding the above, all such ‘non-eligible’ checks can be processed through EFT Network’s check conversion programs as ‘Check 21 IRD’s’ – Contact EFT Network for details.
- ‘ARC’ transactions require ‘Notification’ to the check writer, that their check will be converted to an electronic ACH/EFT electronic debit type transaction. This ‘Notification’ is to plainly appear on each of the merchants invoices that are sent to the recipients. Contact EFT Network for details on the form and text of the required ‘Notification’ language.
- ‘ARC’ transactions also require that an ‘Opt-Out’ provision be made to the check writer, so that if the check writer does not want their check converted to an ACH/EFT electronic debit type transaction, they can ‘opt-out’ of such processing on their check. Contact EFT Network for details on the form and text of the required ‘Opt-Out’ language.
- Other Details:
- Image of the front and back of the converted check must be preserved for 2 years.
- Converted/Scanned check NO LONGER must be destroyed (shredded) within 14 days of the date from when it was originally scanned. NACHA has recently updated the rules to simply require that Merchants must reasonably safeguard checks between when they are scanned and when they are ultimately shredded (no specific timeframe).
- ‘ARC’ transactions can be returned for the same reasons as a paper check, (ie. NSF/UCF, account closed, etc.), plus, for up to 60 days after the settlement date, they can be returned for other reasons to include (1) improper source document (ie. check is an ineligible item as described in No. 3 above), (2) no notification was provided to check writer, (3) the check was presented physically, (4) the amount of the ARC transaction varies from the amount indicated on the physical check. For these 4 noted circumstances, the check writer must complete a sworn affidavit at their bank, under penalty of perjury, prior to being re-credited for the transaction. ‘ARC’ items can also be returned for up to 60 days if the check writer places a ‘stop payment’ order on the item. No written statement is required for this type of return.
- ‘ARC’ transactions must be for the amount indicated on the check, no amounts can be added.
- Returned ‘ARC’ transactions for NSF/UCF reasons may be ‘re-presented’ up to 2 additional times, as electronic ‘ARC’ type transactions. Returned ‘ARC’ type transactions are NOT to be ‘re-presented’ as ‘RCK’ items.
- THE BENEFITS OF ARC CHECK CONVERSION – WHY DO THIS?
- A. When a paper check in converted to an ARC electronic transaction…..it ‘behaves’ differently…in 2 very important ways:
- Increased Likelihood of the Item being paid by the Check Writers Bank:
Banks ‘clear’ or pay their customers (check-writers) check/transaction/debt amounts throughout the day. Most banks ‘clear’ or pay ‘electronic’ type transactions first thing in the morning….before they pay the paper-based items. Thus, for a merchant who has converted an original paper check to an electronic ACH type transaction…they are in a better position to have their item paid in advance of or in preference to other merchants, whose items are still paper based.
- Faster Advice of Returns:
Advice of returns for paper based items can take a long time, especially if the check is from an out-of-state location from where it is deposited by the merchant. By banking rules, the advice of returned electronic transactions must be provided within 2 days. Thus, for a merchant who has converted an original paper check to an electronic ACH type transaction…they will receive faster advice of the return activity when compared to returns received via traditional paper based processing.
- Increased Likelihood of the Item being paid by the Check Writers Bank:
- A. When a paper check in converted to an ARC electronic transaction…..it ‘behaves’ differently…in 2 very important ways:
EFT Application and Docs
APS EFTN Application Agreement
APS EFTN Electronic Check Re-Presentment
