This article should serve as a guide for understanding check drafting. Please consult your legal department to verify any laws that may vary in your state and for recommendations and/or advice.
About Draft Checks and ManageMore
A draft check (also referred to as Check By Phone or Check By Fax) is the process of a business replicating an identical customer check in-house for depositing. The customer provides you key details about his bank account including Bank Account Number, Routing Number, and the Account Holder Name, if it differs from your client records. With the appropriate bank details in hand, you print the draft check and deposit it just like any other check you would receive in the mail. ManageMore requires the “Intellicheck” module for dealing with the entire draft check process.
How it Works
There a few ways that you can handle the draft check relationship with your client. It all starts with getting the authorization from the customer to perform a draft check. This is often a phone conversation where you ask the customer if they would like to make payment over the phone utilizing their bank account for the funds. In order to be legally compliant with bank rules and the Federal Trade Commission, you should provide some form of written authorization form (only needed once) granting you the ability to do a draft check. Other legal options include a phone recording where the customer verbally authorizes you the right to do a draft check. More on the legal stuff later.
A draft check is entered in ManageMore in much the same way a personal check is entered into the accounting system. The main difference is that you must enter all of the customer check details (i.e. Bank Account Number, Routing Number, etc.) on the customer account record first. Then, you take a payment and select “Intellicheck” for the payment method in order for ManageMore to know that a draft check is being requested. You can print one draft check at a time or send the draft check to a queue and print a batch of draft checks at a later time.
What about the Customer Check Number?
There is one detail value that will change each time the same customer opts to allow you to print a draft check on their behalf…. the customer check number. You must ask the customer for the check number they want you to use when you print the draft check. This is critical for the client’s records and required to deposit a draft check with any bank. ManageMore does offer a unique feature that will select a unique check number in sequence each time you perform a draft check for a particular client. This is a convenience feature that you and your client can agree on prior to establishing a draft check relationship, as well.
Bank Routing Number and Bank Name Info
When you record the customer bank details in ManageMore, you will notice that the Bank Name and its Corporate Address will auto-fill upon entering the Bank Routing Number. ManageMore contains a database of over 25,000 bank routing numbers that relate to the bank institutions and their corresponding bank address. Periodically, a bank may change its corporate address, change its name, or obtain new bank routing numbers that may not appear in ManageMore’s database. If this is the case, please update the bank information to match that of the customer’s check. ManageMore will automatically update itself for any future clients that might also use the same bank as well.
Printing Requirements
Contrary to popular belief, a check no longer requires any special magnetic ink for the banks to process it. In fact, a bank could accept a check on a napkin if it wanted to, as long as the bank routing number, bank account number, amount and account holder name were present. That being said, the correct thing to do is to purchase blank draft check paper from a printing supplier for purposes of printing the checks out of ManageMore. We strongly urge that you use a laser jet printer to print all of your bank draft checks from ManageMore.
Best Practice When Printing Draft Check
ManageMore’s Intellicheck module will produce a 3 part draft check. The first section is the check itself and will be separated and sent along with all of your other checks for deposit. The second section is the ‘check
authorization notice’, and the third section is the ‘check authorization notice sent.’ Based on proposed guidelines by the FTC, you should be sending the ‘check authorization notice’ section to the customer each and every time a draft check is printed and deposited on behalf of the customer.
Do I need any certifications or special hardware? Is this All Legal?
Any business can create a check draft. As mentioned already, check drafts have been around for a long time, but mostly utilized by specific industries attempting to get paid quicker from their clients. The Check Clearing for the 21st Century Act (Check 21) enacted into federal law in 2003 just made the whole process easier to do. There is no doubt that check drafting has created a whole new area of fraud for criminals. In fact, the Director of the Bureau of Consumer Protection of the Federal Trade Commission met with Congress to put into place industry standards for check drafting and penalties for this form of check abuse. Click Here to read about Demand Draft Fraud and measures that will likely be done to reduce this form of check fraud. The good news is that ManageMore has already put in place all of the measures mentioned by the FTC to ensure safe check drafting.
Guidelines for Written Authorization
The most common method for establishing a draft check relationship between you and your client would be by establishing a written contractual agreement. The best way to do this is with an ‘authorization form’ that your client agrees to sign. You would send this authorization form to your customer via fax or email, your customer would read and sign it, then send it back to you. A more modern approach could also be setup with services like www.docusign.com which handles everything electronically for you via email. The authorization form could also be filled out in person if your customer is in your presence. For an example of an authorization form, please click here.
Guidelines for Tape Recorded Authorization
You may also opt to enact your authorization via a telephone recorded approval. Your phone system may have a feature which enables you to record conversations between you and your client. It is important that you know all of your state laws regarding recording of conversations before considering this option. In most cases, as long as both parties are aware of being recorded and consent to this verbal agreement, then you should be fine. It is important that you get all the pertinent questions answered, so there is no disputes at a later time.
The following information must be conveyed to your customer…
The date of the draft(s)
The amount of the draft(s)
The payor’s name
The number of draft payments (if more than one)
A telephone number for customer inquiry that is answered during normal business hours
The date of the customer’s authorization
