DEFINITION of 'Accounts Receivable Conversion (ARC)'

Accounts receivable conversion (or ARC) is a process that allows paper checks to be electronically scanned and converted into an electronic payment through the Automated Clearing House (ACH). This specifically refers to checks that companies receive in payment for an account receivable. Accounts receivable conversion saves time and the expense of physically processing the check. Both the vendor and the bank on which the payment was drawn receive instead an electronic image of the check.

BREAKING DOWN 'Accounts Receivable Conversion (ARC)'

As the financial industry becomes increasingly computerized, ARC has become the norm rather than the exception for large payment processors. Prior to ARC and electronic payments, the most common method of payment was lockbox banking, in which payments are made to a post office box serviced by a bank.

ARC expedites the payment to the vendor, who otherwise would have to wait for a check to be transported and processed.

As noted above, ARC moves through the Automated Clearing House or ACH. The National Automated Clearing House Association (NACHA) manages the ACH. The ACH is a payment system that deals with numerous financial transactions for companies and government organizations, including payroll, direct deposit, tax refunds, consumer bills, tax payments and further payment services. In 2017 the ACH network processed 21.5 billion transactions with an approximate value of greater than $46.8 trillion in total. This was a 5.7 percent and 6.9 percent increase in transactions and total value, respectively, over 2016.

The ACH network batches financial transactions together and processes them at specific intervals throughout the day to expedite processes. For example, the average ACH debit transaction settles within one business day. In addition, recent changes to NACHA's operating rules now allow for same day settlement for the majority of ACH transactions.

Accounts Receivable Conversion and Financial Innovation in Commercial Banking

Many financial innovations in commercial banking have changed the ways that businesses receive and process revenues and manage their accounts. Mobile banking, for example, allows many customers to deposit checks, pay for merchandise, or transfer money instantly.

It’s important for customers and company employees to establish a secure connection before logging into a mobile banking app in order to avoid any personal or business-critical information being compromised. Many financial institutions have taken greater cybersecurity measures to ensure the safety of their financial data, including requiring password managers.

RELATED TERMS
  1. Automated Clearing House - ACH

    An automated clearing house (ACH) is an electronic funds-transfer ...
  2. NACHA

    NACHA is a non-profit association that oversees the Automated ...
  3. Associate Bank

    An associate bank is a bank that is affiliated, usually through ...
  4. Regional Check Processing Center ...

    Regional Check Processing Center - RCPC - is a local Federal ...
  5. Automatic Bill Payment

    An automatic bill payment is a money transfer scheduled on a ...
  6. Electronic Money

    Electronic money is money which exists in banking computer systems ...
Related Articles
  1. Insights

    Inside National Payment Systems

    Investopedia explains: The global interconnection of U.S. payment systems makes commerical and financial transfers possible.
  2. Investing

    MagneGas Distribution Deal Could Boost Revenues

    MagneGas received a final payment from Green Arc, signaling new income from royalties.
  3. Personal Finance

    Alternate Methods Of Online Payment

    Paying by credit is one of the most common methods of payment for online shopping in the U.S. However, there are many other options worth testing out.
  4. Tech

    5 Useless Financial Products That Will Disappear Soon

    Bank deposit slip: what's that? Everyday tools of our financial life that went from indispensable to obsolete.
  5. Investing

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
  6. Tech

    How Digital Payments Will Change Commerce in 2016

    The way we transfer and spend money is constantly evolving, and 2016 is poised to expand digital payments like we've never seen before.
  7. Tech

    New Bank Account? Don't Be Without These 6 Features

    Certain banking features can make managing your finances easier, so it's important to choose carefully when opening a new checking or savings account.
  8. Personal Finance

    10 Bank Promotions That Pay You To Open An Account

    Find out which banks are running cash promotions this summer.
  9. Financial Advisor

    What You Gain By Automating Your Financial Life

    Most investors would be better served by automating their financial savings process, as it takes the emotion out of making important money decisions.
  10. Personal Finance

    The Ins and Outs of Bank Fees

    These service charges could nickel-and-dime you right out of your nest egg.
RELATED FAQS
  1. What's the difference between cash-on-delivery differ and delivery against payment?

    Find out more about cash on delivery and delivery versus payment transactions and the difference between these two types ... Read Answer >>
  2. How long does it take a check to clear?

    It usually takes two days for a check to clear, but in some cases it may take longer. Discover how banks treat large deposits ... Read Answer >>
Trading Center