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How does Check Processing Work?

By Florence J. Tipton
Updated May 16, 2024
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To make check processing work, there are typically several separate transactions that take place. The first step in the process comes when a check has been authorized by the person or entity named on the checking account. The bank that operates the checking account typically confirms the check's bank routing number, checking account number, and the amount of the check supplied by the person or entity. After check verification, a payment processing company forwards the funds to the merchant’s business account. While some merchants have their own check processing systems, some decide to use a third-party system to facilitate the transaction from start to finish.

Typically, a person or entity makes a payment in one of three ways by a check. When a transaction is conducted in person, the customer uses a paper check that the store clerk processes on the spot. In some situations, customers choose to send check payments through the mail, with the transaction process working the same way as if payment were received in person. Another way to pay for a transaction by check is through an online transaction where the purchase amount is drafted from the account based on routing and checking account numbers.

The process is virtually the same whether payment with a check occurs in person, by mail, or online. The bank routing number, checking account number, and the amount of purchase goes through an electronic system. The payment transaction usually posts on the customer’s bank statement with the check number or an identification code that denotes an electronic check payment was processed.

The time that it takes for check processing to work may vary depending on variables such as the merchant, bank institution, and the sophistication of the processing transaction. The check processing transaction typically completes on a customer’s account within one to three days. This process may take longer between the merchant and the third party system, however.

The procedure for processing checks usually depends on the sophistication of the check processing system. Sometimes, the payment amount is processed instantly. In other cases, the processing company may place a hold on the funds until the payment transaction is complete. For other systems that neither process the transaction instantly nor place a hold on funds, the process could take up to three days to complete.

The bank may either authorize or deny the payment. This could depend on the financial agreements between the bank and customer. Where the customer and bank do not have a pre-arrangement to cover payments, insufficient funds may result in a debit against the merchant. Usually, the payment processing company charges the merchant a fee for the returned item.

Some customers may have overdraft protection, which authorizes the bank to approve a payment although the account has insufficient funds. Generally, funds transfer from a separate account to cover the amount, along with additional processing fees. The method of check processing typically will not change from the perspective of the third party system.

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