What is BOC?
What is Back Office Conversion and How Does It Work?
In May 2006, NACHA, The Electronic Payments Association, approved a new standard entry class (SEC) code known as back-office conversion, or BOC. Back-office conversion allows businesses to convert eligible checks to ACH debits right in the back office. The new rule went into effect March 16, 2007.
Back office conversion enables businesses to accept eligible paper checks at the point-of-purchase or at a manned location and then convert those checks to ACH debits, which can be processed electronically for increased efficiency. Based on another NACHA ruling effective September 15, 2006, eligible checks include consumer and business checks that do not contain an auxiliary on-us field and are written for no more than $25,000. Appropriate notice and contact information are to be provided, and customers must be given the ability to opt-out.
What are the benefits of BOC?
NACHA estimates that the banking industry could save $320 million over the first five years of BOC adoption, thanks to its processing efficiency. The BOC format is a third check conversion SEC code. Companies already use the point-of-purchase (POP) and accounts receivable conversion (ARC) formats to turn customers checks into ACH payments. Check conversions are estimated to save the banking industry between $0.03 and $0.05 for every check converted to ACH debit, according to NACHA.
How Does BOC Work?
- A consumer makes a payment by check to a merchant.
- The checks are collected throughout the day and later sent to the back office. The check is used as a source document to retrieve the MICR information necessary to create an ACH transaction in lieu of processing the paper check. Information is taken from the magnetic ink character recognition (MICR) line at the bottom of the check (i.e., routing number of the payor bank, number of the check and account number of the consumer.) The amount of the check is captured using a variety of automated methods.
- The merchant subsequently compiles a file of multiple ACH transactions for delivery to its financial institution (ODFI) and ultimately for settlement.
- The ODFI transmits the file of BOC items to the Federal Reserve for processing.
- The Federal Reserve processes the file and passes a credit for the BOC items to the ODFI and debits to RDFIs.
- The consumer’s financial institution (RDFI) debits the consumer’s account. The payment is listed on his or her account statement, including the date of the payment, name of the company paid, check number, and amount of payment.
Source: Federal Reserve Board Financial Services Policy Committee website
Learn more about Accounts Receivable Conversion (ARC), and Point-of-Purchase (POP). See the FRB's comparison of BOC, ARC, and POP. NACHA has published a Guide to Implementing a Back Office Conversion Entry Program, which is available from the NACHA website.
Preparing for and Using BOC
The FRB also has prepared information for merchants on handling BOC.
Contact us for more information.