Question & Answer

Question: We had a customer come in and ask if it was quicker to get a check paid by sending it through for collection, rather than just deposit it. It was a very large personal check (over $20,000) and we would have placed an extended hold on it. Would it be faster to put it through for collection?

Answer: Depends on the distance between financial institutions. Putting a check "through for collection" simply means giving the customer a receipt for the check itself, not crediting the account at all. Take the physical check, put it in an envelope, and mail it to the drawee bank. How long does it take to copy it, address it, put it in the mail, the post office to get it delivered, etc.? Then, when the drawee bank gets it, how long does it take them to put a hold on the account, create a cashier's or official check, put their credit and the check through the work, put the official check in an envelope, and send it to you? (Believe it or not-the bigger the bank, the less time it takes!)

Now when you get the official check, you finally create a deposit ticket to the customer's account and credit his account with the amount. You, having guaranteed funds, will probably not put an additional hold on his account.

Bottom line? An extended hold could mean about eleven days before he could get his funds. Putting the check through for collection might be a few days earlier-if there are available funds are in the maker's account and if the drawee bank is on the ball.

If there is a question as to whether a check is good, or if it has been returned once for NSF, putting it through for collection with instructions to hold for 20 days or so might be the difference between getting the check paid and not getting it paid. The drawee bank will try the account every day for 20 days to see if the hold will take. If it does, they'll grab the money and cut an official check, which they'll then send to you in place of the original item. Your customer will be much happier.

The safer method? When in doubt, put it through for collection. It eliminates the possibility of overriding the uncollected deposit, because the amount is not credited to the customer's account until the original check is actually paid.

The quicker method? Walk the check to the drawee bank with your signature guarantee under your customer's endorsement. They can then immediately cut an official check payable to your bank "for the credit of" the name of your depositor. Bring the official check to your bank, deposit it into your customer's account, and you can give him much quicker availability.

Copyright © 1997 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 7, No. 9, 8/97