What is a “Substitute Check”?
Have you heard the term “substitute check” used? Have you wondered what it means? Find out here (and also find out why you should care).
In 2004, a law went into effect in the U.S. referred to as “Check 21″. Check 21 made it easier for banks to process checks faster. In effect, it allowed banks to replace the old-fashioned paper check system with a fancy and efficient electronic system. To make check processing faster, many banks no longer send paper checks to other banks to receive payment. Instead, these banks exchange payment information electronically. Many banks now electronically transfer check images instead of physically transferring paper checks.
Check 21 lets banks replace your original paper check with a “substitute check” (that is typically created and transmitted electronically). Substitute checks are special paper copies of the front and back of the original check. They can be processed as if they were original checks. The front of a substitute check should state: “This is a legal copy of your check. You can use it the same way you would use the original check.” You can use a substitute check as proof of payment just as you would use an original check.
Here’s an example of the front of a “substitute check”:
And here’s an example of the back of a substitute check:
So, why should you care about electronic checks and substitute checks? They are processed faster than old-fashioned paper checks. An electronically transmitted check can post to your account in a day or two (instead of 3 to 5 days). You have less time between when you write a check and when it hits your account. So you need to make sure you have enough money in your account when you write your checks.
Don’t try to “float” your checks anymore. You may have gotten away with it in the past, but with Check 21, your chances of success are slim.
When you bounce checks, you end up on the ChexSystems list. When you end up on the ChexSystems list, you end up having a very difficult time opening a new bank account (for up to 7 years!). Don’t chance it!
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