Traditional paper-check transactions in which merchants manually endorse and carry checks to the bank for deposit are still very common. In fact, checks are the most widely used payment method at many self-storage properties.
The Check Clearing for the 21st Century Act (Check 21), which went into effect in October 2004, allows an electronic image of a paper check to be substituted for the original at a bank or in a court of law. So when you deposit a paper check, the bank can process it electronically without needing the consent of the check-writer or originating bank. Your bank simply scans and then shreds the paper copy, converting it to an electronic check before distributing it to the originating institution.
Thanks to Check 21, consumers can no longer count on achieving float time with check payments, which is good news for merchants. Businesses that process large numbers of paper checks should take advantage of electronic processing and the benefits it provides. In fact, electronic checking creates such convenience for owners and consumers that all businesses should review their payment-processing options. The following alternatives work particularly well in a self-storage environment.
Point of Sale
Today, at most places of business, traditional cash, check or credit-card payments can be accepted in the form of a debit transaction, in which a customer enters his PIN into a keypad. The funds are withdrawn from the customer’s account and credited directly to the merchant within 24 to 48 hours. The point-of-sale (POS) transaction does not go through unless the funds are available at the time of purchase. No longer must merchants deal with the risk of registers full of cash or large cash deposits. Debit transactions also help them avoid the threat of bad checks and credit-card charge-backs.
Prearranged Payment and Deposit
In the case of a prearranged payment and deposit (PPD), a customer authorizes a merchant to regularly debit his account for a set amount. Every month, the customer’s account is debited—and the merchant’s account credited—for a standard recurring payment, such as rent.
To initiate a PPD, the merchant scans one of the customer’s blank checks into management software via a magnetic-ink check reader (MICR), which captures the account and routing numbers. Then each time rent is due, the merchant submits the PDD to his bank or payment processor in a batch-mode file produced by the software. The bank or processor transmits the file to the Automated Clearing House (ACH), an association of Federal Reserve member banks. At the ACH, the debit transactions in the batch are sent electronically to their banks of origin, and each account is debited for the designated amount. Finally, the transactions are sent to merchant’s bank and the appropriate funds credited to his account.
PPDs are processed before paper checks at the Federal Reserve, which streamlines this type of payment processing. The turnaround time for an ACH batch transaction, from the file upload to the ultimate credit, is less than 48 hours. If a customer’s PPD is reversed for any reason, the merchant knows within 24 hours.
The processing fees charged by banks and processors for PPD transactions are very competitive with those charged for paper checks. However, PPD saves owners money in time and labor. In addition, because PPD is automatic and preauthorized, it doesn’t carry the threat of charge-backs associated with credit-card payments. Once the customer’s account has been debited, the transaction is final.
Point of Purchase
A point-of-purchase (POP) payment is used for in-person sales. The customer presents a check to the merchant, who collects the account, routing and check numbers. These numbers are then used to generate a debit entry to the customer’s account for a single electronic transaction. The merchant submits the transaction to the bank or processor instead of the paper check, eliminating an unnecessary trip. The original check is now void and cannot be used again.
An accounts receivable (ARC) transaction converts a check that arrives in the mail to an ACH transaction. The advantages to the business are similar to those of the POP payment—it takes less time to scan the check into software than to write out a physical deposit slip and visit the bank.
By integrating electronic payment options with other tools such as the Internet and self-serve kiosks, self-storage owners can provide customers with greater convenience and cut costs. As the industry matures, it continues to generate more alternatives for safe, convenient and customized rental space as well as streamlined funds management.
Alison Kiesa is the sales and marketing director of Syrasoft Management Software LLC, which has produced management-software solutions for the self-storage industry since 1991. For more information, call 800.817.7706; visit www.syrasoft.com.