Electronic Payments Association (NACHA)
Amendments to Operating Rules

Frequently Asked Questions

1. What does it mean to convert a business check?
2. Can any business check be converted?
3. What are the conditions that make a business check ineligible for conversion?
4. What is the Auxillary On-Us field on checks and how does it work?
5. How do I keep my checks from being converted?
6. What do I do if my check is converted and I did not want it converted?
7. How do I participate in electronic check conversion?
8. How will stop payments work?
9. What is ACH Debit Block and ACH Filter?
10. How will this work with debit blocks and filters?
11. Will a converted check clear faster than a paper check?
12. How will I recognize a converted business check on my statement?
13. How do I get a copy of the original business check?

Answers

1. A business check can be “converted” either at the point of sale (POS) or when received by a billing company through the mail for payment. The account information is captured from the check and an electronic transaction is created for Automatic Clearing House (ACH) processing.
   
2. Any business check can be converted, unless rendered ineligible.
   
3. Some of the conditions that will render a check ineligible include:
   1. Checks that contain an Auxiliary On-Us Field in the MICR line (see next question and answer for more information)
   2. Checks that are written for an amount greater than $25,000
   3. Checks payable in a medium other than U.S. Currency
   4. Checks provided by a credit card issuer for accessing a credit account
   5. Checks drawn on a home equity line of credit
   6. Third party checks
   7. Obligations of financial institutions (travelers checks, cashier’s checks, money orders, etc.)
   8. Checks drawn on the U.S. Treasury or Federal Reserve Bank
      
4. The Auxiliary On-Us field is an optional field that can appear on some checks, in the leftmost position of the MICR line. It is generally used on checks issued by corporate treasury, purchasing and accounts payable departments.
   
5. The new amendment to the NACHA Operating Rules includes the opportunity for businesses to opt out of check conversion. The simplest way to make sure your checks are not converted is by using checks that include an Auxiliary On-Us field in the MICR line of your check. This can be arranged with your check provider.
   
   Also, you may contact the companies that send you bills directly to opt out of check conversion. When providing payment at a retail store, you may choose to use a different form of payment if they are using check conversion at the point of sale.
   
6. If you do not wish to have your checks converted, and your checks do not contain an Auxiliary On-Us field in the MICR line of the check, you can contact the organization sending the invoice to opt out of conversion. In a retail store, you may choose to use a different form of payment.
   
   The invoicing organization is required to notify you if it is using the check conversion process, usually with a note on your invoice or with an enclosure. If you mail in the payment without notifying the company your intent to opt out, you have essentially provided authorization for your check to be converted from a paper check to an electronic transaction. At a retail store, your signature is required as authorization for your payment to be converted into an electronic transaction. If you do not receive notification from an invoicing organization or provide written authorization when in a store you may ask the bank to return the transaction as unauthorized.
   
7. As of September 15, 2006, when the new amendment to the NACHA Operating Rules takes effect, if you want your check to be eligible for conversion, you should use checks WITHOUT an Auxiliary On-Us field. Discuss your business check format with your business check provider.
   
8. You will still be able to place a stop payment on the transaction. Yet, you may need to place the stop payment before the check has been converted.
   
9. Automatic Clearing House (ACH) Control Services allow companies to set restrictions on the outgoing ACH payments presented against their account. With ACH Debit Block, a customer can prohibit all outgoing ACH transactions from being paid. With ACH Filter, a customer can tell the bank what organizations are authorized to collect payment from the business account, and block those that have not been authorized. Click here for additional information. (should link to ACH Control Services page.)
   
10. If you use ACH Debit blocks on your account, all converted check transactions will automatically be returned to the company to which the check was written and the payment will not be processed. If you use ACH Filters on your account, you will need to contact 1st Source Bank Cash Management Services to ensure that the converted checks are added to your filter list and processed. Call 1-800-513-2360 and request to speak to a Cash Management representative.
    
11. The deposit schedule for a converted check will be the same schedule that is followed today with a non-converted check. Variables impact timing but, generally, the payment may clear faster when a paper check is converted for processing through the ACH network.
    
12. The transaction will appear in the “Other Account Activity” section of your bank statement, providing you with the serial number of the check and payee.
    
13. Contact your 1st Source Business Banking representative for assistance.

Resource Used:
http://www.electronicpayments.org/financial/fi.check-conversion.faq.php