Check Conversion

Check conversion is a reformatting service offered by banking merchants. Check conversion allows banks to convert paper checks into electronic ones and then send them to the appropriate receiving bank. The electronic check is forwarded via the automated clearing house (ACH).

Check conversion is performed using a check reader that captures account information from a paper check. The account holder may or may not fill out the check before submitting it to be converted. The paper check is used as a source of information to conduct the transaction – namely, the account number, the routing number and the check number. The check number will appear on the account holder’s statement to identify the transaction. Because check conversion uses the check number to identify the transaction, each converted check can only be used once, even if it’s not filled out.

The routing number and account number on paper checks are printed using magnetic ink and a font that makes them easy for check conversion machines to read. Merchants can use check conversion at point-of-sale (POS) terminals. Paper checks deposited in bill payment drop boxes or sent through the mail can also be converted. In some cases, account holders may not even realize that check conversion is happening.

Merchants are required to notify customers when they perform check conversion, also known as electronic check conversion (ECC) or electronic check processing (ECP). The merchant may do this by posting a notice on the premises or at the POS, or by asking the customer to sign a document agreeing to check conversion.

Check conversion is popular with merchants because it allows them to clear the checks they get much more quickly. The quickness of the electronic format eliminates much or all the time spent waiting for a traditional paper check to clear; check conversion withdraws money from the account immediately, in much the same way as a debit card would. While this means a faster payment for the merchant, it also reduces the ability of account holders to play the float, and could result in bounced checks if account holders aren’t aware that check conversion is being used.

However, check conversion offers greater regulatory protection to account holders. Converted checks are also cheaper to process than paper checks, because they don’t have to be mailed or physically presented to the issuing bank. Furthermore, electronic checks are always processed before paper ones. This service is also known as accounts receivable conversion.