What is Check Truncation?
Check Truncation is the automated version of a paper check. Sometimes called ‘check conversion’, Check Truncation is the use of terminal technology to read checking account information encoded at the bottom of a check. The Magnetic Ink Character Recognition (MICR) characters that identify the checking account on which the check is being written are used to create an electronic check.
The amount of the electronic check (equal to the amount of the paper check the customer first presents for payment) is created by key-entry on the terminal, and then electronically presented to the financial institution which holds the checking account. The paper check is then returned to the customer to be voided.
Why customers like Check Truncation
Most customers find it more convenient than using a paper check; they immediately have a transaction receipt and the paper check as a record of their purchases. They don’t have to wait for their monthly statement to document the transaction. With “Check 21” (the Check Clearing for the 21st Century Act), a federal law that allows banks and other financial institutions to exchange electronic images of checks instead of paper checks, customers are already familiar with no-paper checking transactions, and Check Truncation services have even greater customer acceptance.
Key benefits of Check Truncation
- Improves cash flow
- Minimizes returned checks, returned check fees and warranty claims
- Reduces merchant bank fees
- Streamlines the check acceptance process and reduces paperwork
- Expedites closing, balancing and settlement
- Paper check handling is eliminated
- Payment is virtually immediate
- The transaction is turned down if the account is closed or there are insufficient funds—bounced check losses are almost completely eliminated*
* Since the transaction becomes an electronic transfer of funds, it may be subject to the customer’s rights to challenge the transaction under federal and any applicable state law.