Checks Are No Longer “In the Mail” Under New Regulation

The Business Journal of Milwaukee
By Phil Trewyn

Federal legislation that goes into effect Oct. 28 and aims to streamline how banks clear checks means business owners will have to be more cognizant of having funds in place to cover checks, say bank executives.

“This will be a rude awakening across the board for all businesses,” said Margaret Henningsen, vice president and co-founder of Legacy Bank, Milwaukee.

The Check Clearing for the 21 st Century Act, otherwise known as Check 21, requires banks to clear checks electronically rather than sending paper checks through the mail to settle accounts. As a result, the time between when a business or individual customer’s check is issued and cleared by the bank, known as the “float”, will be reduced from a period of several days to one day or less, Henningsen said.

“Some people will have to change the way they do business. You have to have money in your account before you write a check,” she said.

It’s likely Check 21 will impact one- or two-person proprietorships more than any other business, said Jodi Sturgeon, vice president of Wisconsin Women’s Business Initiative Corp., a Milwaukee economic development organization. “I think it will impact the very small business owner because they tend to operate more on a shoestring budget,” Sturgeon said. A smaller cash flow leads to greater likelihood that a business relies on the float in order to cover checks.

Representatives of small-business organizations said Check 21 has yet to become a significant issue. Scott Stenger, governmental affairs director for the Tavern League of Wisconsin, Madison, said his organization has not had any inquiries from its membership about the legislation and has yet to offer any informational programs about it.

Restaurants Await Impact

Pal Merline, a spokesman for the Wisconsin Restaurant Association, said it’s too soon to say whether the legislation will significantly impact businesses. “It’s not something we’ve been looking at real close. We have not had any questions from our membership yet,” Merline said.

Henningsen said another impact of Check 21 on businesses will be that canceled checks will not longer be sent back to those who wrote them. Some business owners who don’t balance their checkbooks rely on obtaining canceled checks, which are then turned over to an accountant to reconcile finances. “They won’t be able to do that anymore,” Henningsen said.

Not all small businesses expect to be dramatically impacted by the legislation. Christopher Carter, president of CCI Inc., a software consulting company in Hales Corners, said his clients are required to pay within 30 days, which creates a reliable cash flow to cover checks. “We’re not floating money from account to account,” he said.

Don Muehlbauer, president of Techworks Inc., a Wauwatosa technology service company, pointed out that businesses can still rely on a “mail float”. That means some checks sent in the mail to vendors won’t be received for several days, which can provide time to put cash into an account, he said.

Bye-Bye Bounce
Ty Taylor, president of Waukesha State Bank, said that while Check 21 will eliminate the float, it also means checks received by a business will be less likely to bounce. “This will affect everybody from the normal consumer to the business owner,” Taylor said.

Ada Duffey, president of the Milwaukee Lean & Asbestos Information Center, said her four-employee business offers training classes for lead paint and asbestos removal work and requires payment in advance for the courses. “This will help us to know in advance if someone is able to pay or not,” Duffey said.

Check 21 will also reduce instances of check fraud because the electronic processing will allow fraud safeguard processes to begin sooner, said Tracy Coenen, president of Sequence Inc., a M

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