Accounts Receivable Conversion (ARC)

Accounts receivable conversion (or ARC) is a process that allows paper checks to be electronically scanned and converted into an electronic payment through the Automated Clearing House (ACH). This specifically refers to checks that companies receive in payment for an account receivable. Accounts receivable conversion saves time and the expense of physically processing the check. Both the vendor and the bank on which the payment was drawn receive instead an electronic image of the check.

As the financial industry becomes increasingly computerized, ARC has become the norm rather than the exception for large payment processors. Prior to ARC and electronic payments, the most common method of payment was lockbox banking, in which payments are made to a post office box serviced by a bank.

ARC expedites the payment to the vendor, who otherwise would have to wait for a check to be transported and processed.

As noted above, ARC moves through the Automated Clearing House or ACH. The National Automated Clearing House Association (NACHA) manages the ACH. The ACH is a payment system that deals with numerous financial transactions for companies and government organizations, including payroll, direct deposit, tax refunds, consumer bills, tax payments and further payment services. In 2017 the ACH network processed 21.5 billion transactions with an approximate value of greater than $46.8 trillion in total. This was a 5.7 percent and 6.9 percent increase in transactions and total value, respectively, over 2016.

The ACH network batches financial transactions together and processes them at specific intervals throughout the day to expedite processes. For example, the average ACH debit transaction settles within one business day. In addition, recent changes to NACHA's operating rules now allow for same day settlement for the majority of ACH transactions.

Many financial innovations in commercial banking have changed the ways that businesses receive and process revenues and manage their accounts. Mobile banking, for example, allows many customers to deposit checks, pay for merchandise, or transfer money instantly.

It’s important for customers and company employees to establish a secure connection before logging into a mobile banking app in order to avoid any personal or business-critical information being compromised. Many financial institutions have taken greater cybersecurity measures to ensure the safety of their financial data, including requiring password managers.