By Charlie Gruschow
Some things you need to know.
Have you recently purchased gas and written out a check for the purchase only to see the attendant put it in a scanner and hand back the check? If you haven’t, it will happen to you very soon. That check you gave to the attendant was turned into an ACH transaction. When you get your statement it will show the check number and the name of the gas station. Or perhaps you looked at your personal checking account bank statement recently when it didn’t balance and saw that a check you wrote for your car payment to Honda or your mortgage payment to Wells Fargo did not get returned? Yet the check was processed and on the statement it shows the check number, names Wells Fargo Bank and the amount. Wells Fargo took your check and turned it into an ACH transaction.
ACH stands for “Automated Clearing House,” a shorthand reference to the nationwide network of fund transfer systems governed by the National Automated Clearing House Association. ACH payments include:
- Social Security, tax refunds and other government benefits;
- Direct deposit from payroll and direct payment of bills;
- Business-to-business payments;
- Federal, state and local tax payments.
For decades checks written all across the United States have cleared through the different regional offices of the Federal Reserve Bank. Some companies hired private jets to get checks to clear faster. Other companies had accounts in Montana so that checks cleared slower and they got a longer “float” or use of the money.
Almost all checks written anywhere in the United States would clear within five business days. The system worked very well. That is, it all worked very well until September 11, 2001.
On September 11, all flights were grounded for three days. No one and nothing was in the air. No checks were being processed at the Federal Reserve. None were clearing anywhere. The system simply shut down. The Federal Reserve had to step in and pump billions of dollars into the system for those few days so that the whole system did not suffer a complete meltdown. Once planes could fly again, everything got back to normal.
The United States Congress convened immediately and one of the key issues it addressed was how to make sure a complete shutdown of the check processing system did not happen again. What they came up with is the Check Clearing for the 21st Century Act, a law passed in October 2003. The act, which is set to go into effect next month, is familiarly known in the banking industry as Check 21.
Will Check 21 change everything overnight? No, but you are going to see our society move very quickly to checks that are electronic instruments instead of paper.
How quickly? It is already happening. In 2003, the number of electronic transactions, such as “click and pay” Internet banking doubled to 1.3 billion transactions. ACH transactions also grew to 10 billion transactions, a total of $27 trillion. So it is happening and it is going to be happening much faster after the new law takes effect.
Four years ago, Wells Fargo Mortgage was handling 81 percent of their transactions by paper checks. Today 88 percent is completed through electronic payments. Deluxe Checks, a Minnesota-based check printer, is closing three of their 13 plants. Companies with fleets of private jets that do nothing but fly checks around the country every night are quickly trying to diversify into the charter flight business. There are already all kinds of projections on how the banking industry is going to start increasing charges for processing the paper.
What does all of this check information mean to you and your business? When your end-of-the-month statements go out to your customers you will be able to offer to your customers the ability to go to a website and make the payment by electronic check.
Imagine your collection person making calls tonight, and the past due customer says, “I’ll get a check in the mail tomorrow.” Soon, your employee will be able to say; “I can save you a stamp and an envelope. If you give me your account number and bank number, I can just debit the amount from your account right now.” If a customer still mails in a check, software will let you scan that check and shred it.
What will this do for your business? It will clear your checks faster. You will have collected funds quicker. You will not be billed $6 to $20 for checks that are returned to you for NSF (non-sufficient funds). You won’t have to send someone to the bank to make a deposit and have them wait in line. If you get a bad check you can run it right back through again electronically, not through the Federal Reserve’s paper system that might take another five days or more before you know if the check is good or not.
You may have a low rate for your credit card processing, at least that is what the salesperson said. But most likely your credit card statement at the end of the month is so confusing you don’t know how the charges were calculated or why. In this portion of the article we are going to try and explain some of the charges and fees that make credit cards expensive for business owners.
Most of the time merchants like you—the water conditioning business or bottle water company—have not taken the time to learn and understand, or the credit card company did not take the time to help you understand, the different up-charges (add-ons with additional fees, in their parlance) that occur from different transactions.
Remember the credit card salesperson and the great rate he was offering you? What he probably said, but you did not understand, was that the special rate was for transactions where the card is scanned, the customer is present and the transactions for the day are sent in on time. If you do not have all of those items in place, charges for transactions can skyrocket.
In each of the following situations the credit card company will charge you an extra fee for the transaction. And that fee can be significant.
- The customer charges over the phone or mails in his credit card number, but the card is not scanned because the person is not present. This occurs every day and it is an up-charge transaction. If your business has a lot of these you, as an owner, need to know what your rate is for this type of transaction.
- Tonight your employee left early and you don’t know how to send the ‘end of the day’ charges into Visa and MasterCard so you don’t do it. That whole batch of transactions will end up with an up-charge for not being processed on time.
- Your customer has a card issued by a foreign bank. The card looks the same, but the user of the card got it in the Cayman Islands or Mexico. You will pay Visa and MasterCard more for that transaction, and you might not have even known it was a foreign card.
- Did you know that the customer that gave you their credit card may write to the credit card company up to a half a year later, and say they want their money back because the product was bad? The credit card company will then send your company a request for information on that transaction. If you are busy and don’t get to it (or can’t find it) and are unable to respond in the 10-day period you will be charged back for that entire transaction even if it was perfectly legitimate. This is a growing type of fraud but businesses are still getting stuck with the tab.
- Have you noticed in the last couple of years that when you use a credit card, the sales clerk will ask you if your card is a credit or debit? If you accept a debit card the transaction is going to cost you more.
- You swipe a customer’s card today and the machine doesn’t read it. I suggest you quickly get some alcohol and clean your bar reader. Because if instead of swiping the card your office person enters the numbers manually on the keypad, you are going to pay Visa or MasterCard a lot more for that transaction. Often the clerk will bring out an old hand credit card machine to imprint the card. This is proof the cardholder was present.
These are just some of the common up-charges that make the cost of accepting credit cards skyrocket. There are companies that can look at your last two or three months of credit card statements and make suggestions on how to save on these charges. Your local bank many times is not educated in how Visa and MasterCard operate. They might just be an agent for a larger bank somewhere else.
About the author
Charlie Gruschow works for Combined Investments, Inc. His company advises companies on check and credit card processing. If you have further questions on items in this article and how they might work in your business he can be reached at (515) 221-3400.