FedACH® Back Office Conversion Resource Center – ARC Overview

This resource provides an overview of the Accounts Receivable Conversion (ARC) standard entry class (SEC) code, including a process flow chart.

What is ARC and How Does It Work?

ARC is the SEC 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.
Point-of-Purchase Flow

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