Checks are one of the ways by which businesses and individuals receive payments. Although digital payment platforms like PayPal are on the increase, paper, and electronic checks are still being used. Here are some things that you must know about check processing.

1.Paper checks are vastly less used than electronic checks:

In today’s digital age, paper checks are becoming more obsolete. Few customers want to go through the process of taking out a paper check and filling it. Also, paper checks usually take longer to clear and could have more tedious processes to cash out. Paper checks must be deposited at the bank, unlike electronic checks which do not require that. Electronic checks are transmitted digitally which makes for fast, secured transactions. They can’t be stolen like paper checks. In October 2004, the Check Clearing for the 21st Century Act was effective and electronic checks became a thing. This oversaw the transition from paper checks to electronic checks. The act is commonly known as Check 21. With Check 21, there was no longer a need to send checks through the mail. Banks could now use substitute checks which are images of the back and front of any personal or business check. The substitute checks are then transmitted electronically to the clearing unit.

2.Electronic checks are processed through automated clearing houses:

In the United States, there is an electronic network for financial transactions called Automatic Clearing House. Automated Clearing House uses batch processing to move funds from one bank account to another bank account. Electronic checks that are created from CheckComposer and other platforms can be processed through ACH.

3.The originator initiates the direct processing process:

The merchant that receives the check and wants to cash it is called the originator. It is the originator that starts the direct deposit process. The originator provides an online form that requests for the customer’s bank routing number and checking account number. The customer’s bank routing number and checking account number can be found at the bottom of a paper check. They provide the bank with information on the bank address and account from which funds will be withdrawn.

4.The bank of the originator is called the Originating Depository Financial Institution (ODFI):

The bank of the person that wants to receive the fund is known as the Originating Depository Financial institution or ODFI. The ODFI places the Automatic Clearing House entry for the originator, compile payments from various customers and send the payments in batches to the ACH operator.

5.The ACH operator is responsible for sorting the request:

After the bank of the originator requests for the fund, the Automatic Clearing House operator sorts the fund request and send it to the bank of the customer. The two major institutions that handle the process of sorting the request is the Federal Reserve and the Clearing House.

6.The fund is available in less than two days:

After the ACH operator sorts the fund request, a Receiving Depository Financial Institution (RDFI) receives the request. The RDFI then verifies that there are funds available to process the request. After this, the account of the customer is debited, and the originator’s account is credited with the money. So, within one or two days, the money is available in the account of the originator.


Checks are still a good way to receive payment. Subscription-based businesses like online music platforms, online magazines, and others have a lot to benefit from the use of electronic checks. Credit card numbers change a lot, but ACH electronic payments are not subject to change. This ensures that a merchant continues to receive payment without hitches. When credit card numbers change, there could be breakage and businesses can lose paying customers.
Also, if your business accepts large payments, checks could be more beneficial for you. With checks, you can cut out the middlemen that are involved in processing credit card payments, and you get to save more money. Businesses that accept payments in hundreds and thousands of dollars have a lot to gain from this.

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