What is Remote Deposit Capture and how does remote deposit capture work?
A financial institution service offering that is growing in popularity and adoption is called remote deposit capture, or RDC. In simple terms, remote deposit capture enables a small business to attach a relatively inexpensive check scanning device to a personal computer and to use the scanner to make electronic deposits of checks and money orders to their bank. Remote deposit capture is intended to save the small business manager frequent trips to the bank and to save the bank time and money in terms of the effort involved to process and credit the deposit.
Scanners come in a variety of models with varying features, and typically can be purchased for between $400 and $1000 per unit. In many cases, a financial institution that offers remote deposit capture services will provide the scanner for free or for a discounted cost to the small business owner. Scanners can have either single-feed or multi-feed capabilities. With a single-feed scanner, the operator can only feed one check at a time into the scanner. Alternatively, a multi-feed scanner enables the operator to stack a number of checks in the scanner feed device, push the scan button, and the scanner will process the entire batch of checks automatically one after the other. Single-feed scanners are less expensive than multi-feed scanners, and usually less problematic to maintain as well. Scanners can also come optionally equipped with franking devices that will stamp the back and/or front of the scanned check with a notice showing the scanned item has been processed or deposited.
Checks are usually scanned in batches, and prior to scanning a new batch the operator typically will enter a control total for the batch. The control total consists of the grand total of the dollar amounts of all of the checks that are to be scanned, and may also include an item count of the number of checks to be scanned. These totals will be used later in the scanning work flow process to catch errors prior to submitting the batch for deposit.
As each check is scanned, the special font at the bottom of the check, called a MICR line (Magnetic Ink Character Recognition), is read by the scanner and Optical Character Recognition (OCR) software is used to extract other important information from the scanned document, such as the name associated with the check and the amount of the check. It is critical that the scanner capture the MICR line information correctly, as the financial institution uses this information to correctly process the debit against the checking account. The MICR line contains a routing transit number, which identifies the financial institution that holds the particular checking account, along with the individual account number itself.
When all of the checks for a given batch have been scanned, the user is presented with a screen that shows each individual scanned item, including the MICR line, and the amount of the check as automatically read by the OCR process. The scanned item amounts are then totaled and compared to the control total that the operator entered when creating the batch. If the OCR total and the control total are in balance, the batch can be released for deposit. If the OCR total and the control total are not in balance, the operator can re-scan an individual item, or manually adjust either the control total amount or the OCR amount at an item level to bring the batch into balance. The point is, unless the control total and the OCR total are in balance, a batch cannot be submitted for deposit. There can be exceptions to this processing rule if the receiving financial institution offers balancing services as part of their overall remote deposit capture service. If they do, then the bank will have people who manually review each scanned item and do the balancing on behalf of the operator.
Once a batch has been balanced and submitted, a data file is transmitted to the financial institution and the deposit is processed. The financial institution will instruct their customer as to how long to retain the paper checks that have been scanned, but typically it is not advisable to keep the paper checks longer than 14 days, and to destroy the original checks by shredding them. Should the small business operator need to refer back to the original check, they are able to do so by using the supplied scanner software application and looking up a digital image of the check (usually both front and back).
So what happens behind the scenes?
A scanned item can follow a couple of different paths at the depositing financial institution. Either the check is converted to an ACH item (this process is called ARC, for Accounts Receivable Conversion) and the debit is processed within the ACH system, or the item remains an image and is processed as a Check21 item. Note that money orders, corporate checks, and personal checks of a dollar amount greater than $25,000 do not get converted to ACH items, and must be processed as Check21 images. There are consumer opt out requirements for items that are converted (for details see the overview on ARC).
After the deposit is processed, the depositor account is credited for the amount of the scanned item batch. The financial institution will flag any problem items in the batch and notify the depositor if there are items in the batch that cannot be electronically processed.
Remote Deposit Capture and Accounts Receivable
While remote deposit capture does offer convenience and time savings, the downside to this process when offered by financial institutions is that the small business owner still has to manually update their accounts receivable files. The bank typically will not offer the ability to download AR information and make these AR updates happen automatically unless the updates can be made from simple kinds of download formats, such as CSV (comma separated values) or Microsoft Excel. In some small business vertical markets there are 3rd party providers that offer remote deposit capture services that are more tightly integrated with account receivable software packages, but these providers will usually charge for the integration and most likely also charge transaction fees for the scanned item deposits.