What is ARC?

What is Accounts Receivable Conversion (ARC) and How Does It Work?

Accounts Receivable Conversion (ARC) is the standard entry class code for check conversion when a check is written to pay a bill. This check conversion type became effective in March 2002. Billers have used this process primarily for cost saving and efficiency enhancements and have made ARC the fastest growing ACH payment product ever. With ARC, “retail” lockbox checks can be converted into ACH transactions. In order for checks to be converted through ARC, they must have been received through the mail or at a dropbox location. According to NACHA, ARC entries were up almost 60 percent in 2005 from 2004, reporting 2.1 billion commercial ARC entries.

How Does ARC Work?
A consumer billing company notifies its customers that check payments may be processed using check conversion. The notification allows that by sending payment the consumer has authorized the conversion from paper to ACH.

1. A consumer mails a check payment to a biller.
2. The consumer’s check payment is either processed directly by the billing company or sent to a lockbox processing center.
3. The check is used as a source document to retrieve the information necessary to create an ACH transaction in lieu of processing the paper check. The billing company makes a copy of the check, and the original check is destroyed to ensure that the check cannot be used for any other purpose.  Information is taken from the magnetic ink character recognition (MICR) line at the bottom of the check. The MICR line contains the routing number of the payor bank, the number of the check and the account number of the consumer.
4. The amount of the check is captured using a variety of automated methods. The billing company or processor compiles a file of multiple ACH transactions. A file is sent to the ODFI in NACHA format.
5. The ODFI transmits the ARC batches of eligible items to the Federal Reserve via the ACH network.
6. The Federal Reserve processes the file, debiting the RDFIs and crediting the ODFI.
7. Once the consumer’s account is debited, the payment is listed on his or her 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

Click here for more information on Back Office Conversion (BOC) 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.

• Benefits for Merchants (PDF, 27 KB, 02/07)
• BOC Education and Ways to Streamline Transition (PDF, 31 KB, 02/07)

See also

• Check 21 changes - a fundamental change is occurring in the world of checks, for both businesses and banks
• remote capture with remote deposit - ChekDirect solves the problem simply
• remote capture without remote deposit- TEKScan provides one-sided scanning for simple microfilm or photocopying replacement
• back office conversion - TEKScanRC helps you collect the information needed to package information for ACH clearing
• ACH - ACHLink connects your check scanner with the ACH network
• check scanner choices - single feed or batch scanning, one- or two-sided scanning. Digital Check. Canon. Magtek.
• check imaging solutions - the ChekScan suite of products offers a variety of check imaging software, from stand-alone to networked to enterprise
• software/feature checklist - which ChekScan software product best meets your needs? our checklist can help you decide
• ChekScan testimonial - Digital Check thinks highly of our products; see why

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