Checks seem a pretty mundane bit of banking, but if you’ve ever received one that says, “Do not convert to ACH” on it, you may wonder what’s going on. Is the check valid? Is it some kind of scam?
Let us help you out. Here, we’ll take a closer look at this situation and what to do with that check. We’ll consider:
• What ACH, check conversion, and check conversion by ACH mean
• What it means when a check says “Do not convert to ACH”
• What happens when you cash a check that has those five little words on it
Now, it’s time to dive in.
ACH System 101
ACH stands for Automated Clearing House, which is an electronic system that transfers funds throughout the United States. This network allows individuals and businesses to move money from one financial institution to another. ACH transfers fuel so many of the transactions that make our financial world go around. Every time you set up automatic bill pay or receive your paycheck by direct deposit or write an eCheck, that’s ACH at work. Apps such as PayPal and Venmo also use the ACH network to send and receive money.
All money that flows through the ACH network is transferred electronically and uses bank-level encryption. In other words, transfers are safe and secure. They protect sensitive information such as your bank account number and a financial institution’s name from thieves.
How Does ACH Work?
ACH transfers are initiated by either making a withdrawal or deposit into an account. You can send money to another account on a one-time basis — such as through an ACH debit to a utilities company or transferring money to a friend for your share of a restaurant meal — or opt into recurring payments. For example, some companies allow you to make automatic payments, such as for subscription services. In either case, you give permission for the receiver to initiate a withdrawal from your account.
Now, let’s consider the flipside: You could receive money; that is, get an ACH credit. This happens when people receive a direct deposit of their paycheck or Social Security.
Once you or someone else initiates a transfer, the request will be processed first by your financial institution. You’re probably curious about how long an ACH transfer takes. Once the ACH transfer request is received, the financial institution will complete the request no later than the next business day. You may be able to expedite the request, as well as schedule a transfer for a future date.
Typically, ACH transfers are faster than other types of transactions, though a potential downside is that it’s only available for transfers within the U.S. (That’s one of the distinctions between an ACH vs. wire transfer, incidentally; the latter has global reach.)
What Is Check Conversion?
Check conversion refers to the process of transforming a check payment into an electronic payment. This usually happens at one of these three points:
• Point of Purchase (POP), meaning when a purchase is made, say, at a store
• Accounts Receivable Conversion (ARC), when a business receives a check by mail and then processes it electronically
• Back Office Conversion (BOC), or when a check is processed electronically after acceptance at, say, the office of a retail location
What Does Conversion to ACH Mean?
Now that you know the different junctures at which conversion may be started, let’s get down to the nitty gritty of just what the “conversion to ACH” process means. Simply put, it describes the fact that a paper check will be converted to a payment that’s processed through the ACH network. In other words, even though a paper check was written and used as payment, it will become an electronic ACH transfer.
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Why Might a Check Be Converted to ACH?
The main reason why a check may be converted is to save time and money when processing payments. Plus, converting a check payment to ACH could be more efficient, as it can help financial institutions detect potential fraud earlier, make fewer mistakes, and even result in fewer returned payments. The service of ACH transfers is typically free to consumers.
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Can a Check Be Converted to ACH?
While some may think that checks and ACH are separate entities, in truth, a check can be converted to ACH in many cases. (Unless, that is, the check itself says “do not convert to ACH.”) When converted, processing typically moves swiftly and securely; there’s no check to get lost or be forged, for instance.
Here’s how the conversion usually happens: When the check gets deposited in a checking account, the payment details are captured from the check. Then, the check itself will be stored securely by the financial institution — unless you have the physical check and are making a mobile deposit. If the check is converted in person, then the original check will be voided and given back to the payer.
If the check was converted for ACH, it will typically appear on a bank statement as a direct payment (or withdrawal) in the same section as ATM withdrawals or other forms of electronic payments. It could also appear as a check payment — some banks include a scanned image of the check or include the payment details.
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What Does It Mean When a Check Says ‘Do Not Convert to ACH’?
When a check says “do not convert to ACH,” it means that the payer does not want to make a payment electronically. Instead, the payment needs to be processed manually from one financial institution to another through the check collection system.
More specifically, it means the financial institution will contact the other financial institution to request the funds, which is then delivered through a local clearinghouse exchange or other form organization like the Federal Reserve Bank.
What Is the Benefit to the Drawee if a Check Says ‘Do Not Convert to ACH’?
Checks that say “Do not convert to ACH” may sometimes be printed when a payer is issuing multiple checks; for example, if a class action suit is being paid out. In this case, perhaps the check issuer does not want the much faster electronic processing of their checks. Perhaps it suits them to have a slower payment process.
What Is the Difference Between ACH and a Check?
The difference between ACH and check payments is the network in which they’re processed. ACH payments are processed electronically through the ACH network, whereas non-converted paper checks are processed through a manual process. In many cases, ACH transfers are processed faster than paper checks, though most checks can be processed within one business day, though you may have to wait for it to clear.
The Takeaway
When it comes to getting paid, the ability to convert a check to or use the ACH network is most likely the most efficient way. That’s because this electronic payment system allows financial institutions to process transactions more quickly and securely compared to paper checks.
Unfortunately, there’s not much you can do if the check you receive says “Do not convert to ACH,” however rare they may be. It’s unlikely that you will receive one in today’s world, but if you do, deposit it and allow the extra time required for it to transform into available cash.
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FAQ
Can an ACH payment be declined?
Yes, an ACH payment may be declined or rejected for a few reasons, the most common one being that the payer doesn’t have enough funds in their account for the transfer. Other reasons include the account was closed by the time the transfer took place, the funds have been frozen, or the payer has stopped the payment request.
What does “ineligible for conversion” mean on a check?
If a check says “ineligible for conversion,” it means the check can’t be converted to an ACH payment. This may be due to the paper the check was printed on. The payee needs to either cash or deposit the actual check at a local branch.
Why would a bank reject a check?
There are several reasons a bank would reject a check, including:
• You don’t have an account at the bank where you want to cash the check
• You don’t have proper identification to show to the bank
• The amount may be too large for the financial institution to process
• The check is void (for example, the check is old and the payment is no longer valid)
• The signature on the check doesn’t match what the bank has on file
Photo credit: iStock/fizkes
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