Check 21 vs. ACH: Which Check Electronification Process is Better?

ACH and Check 21 are two of the most popular methods of check electronification. Whenever checks are being scanned and deposited, most of them undergo either of these processes. Here is an article where we will take a look on both methods, share some tips on how you can distinguish checks that were processed either via ACH or Check 21, and see which is the better method.


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Automated Clearing House

ACH (Automated Clearing House) is an electronic funds transfer system which also acts as a payment service that allows electronic debiting and crediting for checking, as well as savings accounts. This was created to provide efficient interbank clearing of electronic payments, especially checks.

The rules and regulations for this network are established by NACHA (National Automated Clearing House Association). In ACH, checks undergo check conversion  in which a check is converted into an EFT (Electronic Funds Transfer) transaction.

Check 21

Check 21, or the The Check Clearing for the 21st Century Act is a United States federal law which allows a check recipient to do “check truncation”, the process of creating a digital version of the check, and then use it as an electronic file called “substitute check”.

The substitute check is also a paper document which shows the front and back images of the check, and is also considered as the equivalent of the original check. Check 21 is not subject to NACHA’s (Electronic Payments Association) list of rules and regulations. In this process, the bank (financial institution) does not return the paper check to the recipient, but instead emails the front and back angles of the check. Check 21, regarded as one of the best methods in handling paper checks, is a much faster option in check processing.

Identifying the Process

For check types, consumer checks are typically used for ACH while checks in Check 21 are for business, cashier, official third party, credit cards and government purposes.

Now, when it comes to how the check was transmitted, whenever the image of the check is captured, then the MICR (Account and Routing Number)  data was transmitted, then it was processed using ACH.

If both the front and back images of the check are captured, and then is transmitted along with the MICR data line, then it was processed using Check 21.

But Which is Better?

Many debates and studies had been conducted to see what check electronification method is better when it comes between ACH and Check 21. Here are some of the key differences that most businesses noticed as they compare these two methods in check processing.

In terms of clearing time, Check 21 topples ACH, as the check gets cleared on the same (or next) day, while ACH clearing process takes 3 to 5 business days, though some said that the ACH process might be more secure since it takes days of review before the check is being cleared, but without a doubt when it comes to speed, it’s Check 21.

When it comes to customer issues, Check 21 allows customers to file a dispute within 40 days, and can also be filed personally at the customer’s bank, while in ACH, customers have a 60 day span in filing disputes, and can only be filed over the phone. Furthermore, payments in Check 21 are sent directly to merchant while ACH still needs a broker/processor before it’s being sent to merchant.

The Result

When it comes to POS (Point of Sale), checks still has it when it comes to less costs, reliability and security from fraud. In this battle of check electronification processes, technically it’s Check 21 stealing the show with it’s much faster processing, shorter timespan for disputes and direct sending, but most businesses actually see ACH and Check 21 in different perspective, since Check 21 is more suitable for business than ACH which focuses more in consumers.

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