he costs of accepting, processing and handling paper checks are extremely high. Estimates for the real cost of a paper check range from $0.75 to $3, and average $1.22 per check. For electronic checks, the cost decreases to a range of $0.32 to $0.70 per check. Electronic check conversion (ECC) continues to win converts based on the benefits of faster funding, reduced risk and fewer hassles. While ECC provides a strong value proposition for the right merchant, many check conversion providers try to fit merchants into a one-size-fits-all solution.

These providers offer a system that only supports guarantee services for consumer checks in a consumer-present environment. Many might view check conversion as adding complexity to POS and reconciliation processes, especially if it places limits on the types and/or methods of checks accepted. Check-accepting merchants need a solution that can convert all checks (business or consumer) in any environment (in person or via the mail) and extends the flexibility of a variety of service levels (guarantee, verification or conversion-only).

Checks Accepted and Processing Networks

Most consumer check conversion solutions use a third-party company to provide verification or guarantee services, and they "ride the automated clearing house (ACH) rails" for processing. Using a service provider that offers direct demand deposit account (DDA) access further enhances consumer check acceptance.

Direct access significantly reduces risk by offering real-time "decisioning" and placing a hold on funds. Today, approximately 30% of consumer DDA accounts can be accessed using Visa U.S.A.'s POS Check Service solution. Depending on the merchant footprint and check conversion provider, between 12% and 20% of checks accepted could be "decisioned" based on actual funds availability. This reduces overall risk for the provider, which can then extend better rates based on direct DDA access.

Visa POS Check Service bank partners include U.S. Bank; Wachovia Corp./SouthTrust Bank; Bank of America Corp.; First National Bank of Omaha; BB&T; State Employees' Credit Union; Navy Federal Credit Union; and Suncoast Schools Federal Credit Union.

The ACH and Visa POS Check Service systems are reliable processing networks for consumer checks. However, most merchants also accept business checks in the form of insurance co-payments, business-to-business supplies or as a regular course of doing business. Using a solution that handles consumer-only checks requires managing two check acceptance and reconciliation methods, which further complicates a merchant's accounting practices.As a merchant level salesperson, partner with a solution provider that, in addition to offering direct DDA and ACH check processing, uses the Check 21 networks to process business checks and other exception items (e.g., convenience checks).

Processing Options

Does the phrase "check conversion" make you automatically think of a point-of-purchase environment in which both the consumer and the check are present? This is the usual environment, and it certainly represents a large opportunity. The introduction of accounts receivable conversion (ARC) processing, in which the check is present, but the consumer is not, opens new markets. This is typical of receivable payments, mail order purchases and companies that operate in a drop-box environment, such as apartment properties.

Often, ARC target markets are not credit card acceptors. These businesses usually know their customers, accept recurring payments and operate in consumer-not-present environments. The businesses want the efficiency of electronic processing to reduce costs and improve the timeliness of deposits. They provide customers with a notice explaining that they will process their checks electronically.

Good candidates for ARC solutions are vocational and trade schools; medical, dental and veterinary service providers; property management companies; municipal utilities, including electric, gas, water, sanitation; rental companies; marinas; self-storage unit operators; trade associations and membership clubs; political and religious organizations; contractor services; and accounting, auditing and bookkeeping services.

Service Levels

Properly aligning the service level to fit a merchant's needs is also important. When looking for an electronic check service provider, work with a company that follows a flexible model. Many providers only offer check guarantee services, but merchants without a bad check problem often have a difficult time justifying the price versus benefit of guarantee-level services. Partner with providers that offer a variety of flexible service levels, including conversion only; check verification; check verification with collections; and check guarantee.

Delivery Methods

Many merchants who process payments through the mail or in a drop-box environment prefer to use integrated software solutions to stand-alone terminal solutions. These merchants do not want to install extra stand-alone equipment to process checks. Attaching a check-imaging device directly to their PC-based POS system works well in their environment.

Look for a check conversion provider that offers software solutions for processing consumer and business checks, as well as interfacing payment information with accounting or patient record keeping systems.

Let's face it: Even though the decline of check usage continues to make headlines, it will take a long time before checks go the way of "zip-zap" credit card knuckle busters. Partnering with the right solution provider will help you reap the rewards of improved merchant retention and increased revenue.

Michelle Graff is Vice President of Marketing for NOVA Information Systems. E-mail her at michelle.graff@novainfo.com .