Accounts Receivable Conversion (Banking) - Explained
What is Accounts Receivable Conversion?
Written by J. Mance Gordon
Updated at April 18th, 2022
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Table of Contents
What is Accounts Receivable Conversion?How Does Accounts Receivable Conversion Work?Accounts Receivable Conversion and Financial Innovation in Commercial BankingWhat is Accounts Receivable Conversion?
An accounts receivable conversion (ARC) is a method through which paper checks are converted to electronic payments using the Automated Clearing House (ACH). Checks that a company receives in exchange for an account receivable is electronically scanned and then changed to an electronic payment. ARC is mostly used by large and successful companies as an alternative to the traditional and physical way of processing checks. ARC as a process is time-effective but not cost-effective. The conversion process is quite expensive.
Back to:BANKING, LENDING, & CREDIT INDUSTRY
How Does Accounts Receivable Conversion Work?
Evolution and development in the financial industry gave rise to the creation of accounts receivable conversion. It is a process through which checks are turned to electronic payments. The financial industry is largely computerized, this is why ARC has enjoy popularity in the industry. Before it was created, the lockbox banking was the common method of payment, this is time consuming. ARC converts checks to electronic payment through the Automated Clearing House or ACH and ACH is managed by NACHA (National Automated Clearing House Association). ACH complies with NACHA operating rules. Quite a number of companies process their transactions using ARC. 21.5 billion transactions which is worth more than $46.8 trillion were processed by ACH in 2017.
Accounts Receivable Conversion and Financial Innovation in Commercial Banking
Accounts receivable conversion (ARC) is one of the many financial invocations in commercial banking. Aside from ARC, other laudable innovations were birthed. A good example is mobile banking which grants businesses and individuals access to their accounts and ability to manage their accounts without the help of a physical bank manager. All forms of financial transactions can be done using the mobile banking platform, this includes payment for services, utility bill payment, cash transfers and deposits or checks. However, mobile banking only functions when a secure connection has been established between a bank and the customer using mobile banking. This helps to prevent invasion from a third party that can lead to the system being compromised or loss of money.