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Check 21 brings efficiency to check deposits.

When the September 11 terrorist attacks brought the airline industry to a temporary halt, the process of depositing and clearing checks nationwide came to a halt as well. At the time, every industry--including the apartment industry--relied on airplanes to transport paperwork for banks. Soon after, Congress decided to take advantage of modern technology by passing the Check 21 Act.

This federal legislation, which took effect on Oct. 28, 2004, was designed to modernize the U.S. payments system through remote deposits. It allows banks to create and present a substitute check for payment in place of the original check, accelerating settlement and eliminating many of the costs and risks that onsite apartment management staff incurred by physically transporting rent checks for deposit.

"Basically, by scanning images of rent checks and sending them directly to the bank, apartment managers can deposit checks anytime, anywhere, and have access to deposited funds far more quickly," said Laura L. Orcutt, Senior Vice President, Technical Sales Consulting Manager for Wells Fargo Bank. "Congress made this possible when it passed Check 21, and now that remote deposit services are available, it's amazing how quickly companies are adopting them."

Substitute Checks: An interim Solution

Orcutt explained the remote deposit process and spoke to its benefits in June during the 2006 NAA Education Conference & Exposition in Denver. Wells Fargo and many other major banks across the nation offer remote deposit service.

The number of Check 21 system installations in the United States is expected to reach 180,000 in 2006 and grow to nearly 1 million in 2007, according to Inovium Corp., a company that produces remote deposit systems.

Remote deposit does not require rent check handlers to change the way they write, accept and deposit checks today. Substitute checks are the legal equivalent of the original checks. All checks drawn on U.S. banks are eligible to become substitute checks. Banks do not have to create substitute checks, but they are required to accept them.

Substitute checks are an interim solution. While remote deposit does not mandate image exchange, banks today will settle check transactions by exchanging electronic images. Electronic images, which cost essentially the same as walk-in bank per check deposit fees (10 to 15 cents each), are a more efficient method of processing deposits and making check information available. By not having to walk or drive to the bank, some apartment management firms have even realized reductions in their workers' compensation policy costs.

Fund Flexibility

Along with faster deposit reporting, remote depositing can enable rent check handlers to make more informed investment decisions. By gaining faster access to money deposited in a community's account, the flexibility to invest and direct funds is increased.

Remote deposit provides returned item notification more quickly (approximately one to two days). Community accounting staff may begin the collection process earlier with next-day online access to returned item images. Remote depositing extends deposit deadlines until as late as 10 p.m. Eastern Standard Time. It also improves research and reconciliation capabilities. Remote deposit is applicable to deposits that involve out-of-state banks.

Guntram Weissenberger, President, The Westover Companies, King of Prussia, Pa., said he recently began implementing a remote deposit system at his 26 communities in the Philadelphia and Delaware markets, totaling 6,500 units.

"This will greatly improve the efficiency of our office," Weissenberger said. "The best thing about remote deposits is that our managers will not have to travel to the bank; they won't have to leave the property. As an owner, it's never good when you make a visit to one of your communities and find that the manager is away at the bank."

Weissenberger said he looked into using check scanning transaction technology about seven years ago but found that scanners then created too many errors when reproducing images of the checks. "But now, scanners are much better," he said.

Some bank systems offer 15 discretionary data fields that allow rent check handlers to enter customized information about the checks deposited. This enables reports to be down loaded in a variety of standard formats, and for rent check handlers to upload the information to their receivables system.

Some banks provide services that enable rent check handlers to leverage the advantages of Automated Clearing House (ACH) payments. They automatically convert eligible checks to ACH debits and process other items as substitute checks or through image exchange. The community's account will show a single deposit credit to keep its reconciliation simple. Consolidated deposit detail and returned item reporting access is available through the bank's portal.

RELATED ARTICLE: Remote deposits: what to do first.

Following are some steps for implementing a remote deposit rent payment system through a bank:

* Meet with fraud prevention teams and make sure they are aware of remote deposits and its implications.

* Evaluate the need for physical check return. Consider using an image delivery option available through most banks and requesting an indemnified copy from the bank only when needed.

* Familiarize staff with the appearance of substitute checks.

* Examine the current check stock and ensure that it can produce high-quality images. The cost of a suitable scanner is approximately $700 to $1,800, and sometimes less if the scanner is leased. Remote deposit requires a scanner, computer and Internet connection. No other major IT investment is needed.

* Monitor disbursement clearing time and consider consolidating controlled disbursement endpoints into one that offers the highest level of reporting and funding accuracy and earliest available presentment times.

* Be prepared for reduced check clearing time, and inform residents that their checks may clear more quickly.--P.B.

Paul R. Bergeron III is NAA's Director of Communications. He can be reached at 703/518-6141 Ext. 137 or
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Author:Bergeron, Paul R., III
Date:Aug 1, 2006
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