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Financial professionals cheered when President George W Bush signed the Check Clearing for the 21st Century Act (Check 21) last fall, marking a monumental step toward eliminating paper checks. Check 21, which becomes law this October 28, should encourage banks to present more checks electronically, and in turn, promote greater efficiencies in the payments system.
Simply stated, Check 21:
* Permits check truncation for all checks, but doesn't mandate it
* Establishes substitute checks, also called image replacement documents or IRDs, which are paper reproductions of original checks that meet defined requirements; substitute checks are legally equivalent to original checks
* Gives consumers (but not businesses) expedited recredit rights
* Requires banks truncating checks under Check 21 to provide certain warranties and indemnities, for example, that no one will be asked to make a payment based on a check already paid
So, how will Check 21 influence corporate treasury? The answer is simple: the impact will be small, yet positive. Let's review how Check 21 will affect corporate receivables, payables and canceled checks.
Corporate Receivables
If your lockbox or cash letter bank uses the provisions available under Check 21, your receivables should be collected faster, and you should be able to negotiate a better availability schedule with your bank. And, if inclement weather or a national disaster delays or shuts down the transportation system, your collections should escape any related, negative impact. Additionally, if Check 21 significantly reduces your bank's costs, perhaps your bank fees will decrease.
Corporate Payables
However, the payables side of the corporation has its own concerns about your company's checks because the float...