Being able to accept payment by a number of different methods can obviously have an impact on sales and cash flow. How does accepting a check for payment by fax work? How do you negotiate such an instrument? Are there any legal issues to be aware of?

Accepting checks by fax is a fairly easy process once you get a few things in place. It's a good idea to talk with your bank before you get started. That way you'll be clear on any requirements they may have for receiving these checks for deposit. It'll avoid frustration and backtracking later on.

Setting Up

Before you agree to accept checks by fax, you need to have the technology in place to handle this kind of payment. Obviously, you must have some means to receive a fax. This can be either a fax machine or a computer with a modem. The operating system of most computers that have modems allows you to receive faxes much the same way that you receive email. If you're not familiar with this feature, your user's manual should be able to walk you through it.

You'll also need an ink jet or laser printer to print the checks, and special check paper in order for them to be accepted by your bank. This is a high quality paper that usually has features such as watermarking and erasure protection. Federal Reserve Board of Governors Regulation CC Security Bond Check Paper is accepted at every bank, but is not required by all of them. Again, you'll want to discuss this with your bank before you begin depositing these checks. High quality check paper is generally available at any office supply outlet.

In the past, special magnetic ink was required for printing checks so that banks could scan them. Now all you need is an ink jet or laser printer, since most banks have upgraded to digital scanning. The software available for printing checks will provide the appropriate font style that can be read by the optical scanners which most banks now use. Those banks that still use magnetic scanning will still process checks that are not printed with magnetic ink. They may charge a small fee, however, (often as low as 25 cents per check) because the information has to be keyed in by hand. Or, you can simply purchase magnetic ink for your printer so the bank is able to scan them.

Software

Once you have the hardware in place, you'll need software that will allow you to produce a negotiable instrument that your bank will accept. There are a number of inexpensive, relatively easy to use software packages available for this purpose. Just be sure that your computer operating system can support the software you select. This information is found in the software's "System Requirements" section.

The documentation that accompanies the software should have all the information you need to install it and to begin receiving and negotiating payments received by fax.

On the other end of the process, to submit a check by fax, your customer writes out the check and signs it. Then, rather than sending it through the mail, sends it to your office by fax. You'll use the information on the check to print a "check" to deposit into your account.

Many software packages also include features that will allow you to receive checks by email and over the phone as well, since the procedure is basically the same for all three methods once your customer submits the information required.

Understanding the Difference Between a Check and a Draft

We've been referring to accepting and depositing "checks" received by fax, but technically what we're doing is receiving information from the customer which allows us to print a draft for deposit. Banks will not accept checks without a signature, but they will process a properly executed paper draft.

Drafting funds from a customer's checking account is a legally accepted method of payment under the Uniform Commercial Code and Federal Reserve Regulations. The primary requirement is pre-authorization of the party writing the check - your customer. This authorization can be verbal or written. The receipt of a faxed check is considered to be written authorization to draft funds in the amount of the check from the customer's account. That's why you don't need a signature on the draft. It's similar to using a credit card over the phone, only in that case the pre-authorization is verbal.

To be sure you have all the information you need, checks submitted by fax should contain:
The name of the bank and the city and state in which it is located
The bank's 9 digit routing or transit number
The fractional ABA number which is derived from the routing number
The name of the payerr or account holder
The check number, amount and date
The payer's signature
The payer's account number

Handling Checks Received By Fax

These "checks" or drafts should be handled the same way you handle checks received in person or by mail. It is important, however, that you keep the faxed copy of the check submitted to you by the customer to verify pre-authorization.

Once you deposit checks received by fax, you can expect the same turn-around time for the check to clear as you would with any check you deposit to your account. Any policies that you follow pertaining to accepting payment by check should be followed with faxed checks as well.

To avoid problems with customers, do a test draft before you start using the system. Print a copy of one of your checks and deposit it into your account. If it clears in a of couple days, you shouldn't have any problems with your customers' checks. If it doesn't, you can track down the glitch and take care of it before you begin taking payment by faxed checks from your customers.

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Information provided by ABC-Amega Inc. Since 1929, providing first party accounts receivable collections outsourcing and third party debt collection for management of your commercial receivables portfolio. For further information on our receivable management services, email info@abc-amega.com.