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ACH Payroll Processing & Fedwire Blog

The dangers of check floating

Monday, March 28, 2016
The dangers of check floating

Payday is an occasion every person looks forward to. Although each company uses a different method to compensate their workers, 96 percent of Americans are paid electronically via direct deposit, according to the American Payroll Association. This immediate transfer of funds is welcomed by employees around the country, especially because they have other bills to pay and expenses to take care of. To manage their wide variety of daily, weekly and monthly costs, people still utilize checks. However, the practice of check floating becomes increasingly troublesome with the rise of automatic payments.

What Is Check Floating?

In all likelihood, most people have probably taken advantage of check floating at some point in their lifetime. There is an amount of time between when a check is written and when the money is taken from someone's account, according to Enlighten Me. It's common for people to write a check before the money – in this case, usually coming in the form of direct deposit – is available to be removed from their bank. These employees take advantage of the float time, as they believe the funds they need will be available by the time the check clears. This practice is not without its dangers. Let's take a look at some examples:

Check floating is taking advantage of the time between when the document is deposited and when the money is removed from an account. Check floating is taking advantage of the time between when the document is deposited and when the money is removed from an account.

Direct Deposit Too Small

Frequently, workers have a good idea of how much money will be added to their account from the most recent pay period. They utilize this information in their budgeting process, deciding when to write necessary checks for certain expenses. Sometimes this total is lower than initially expected. When this happens, employees are left to scramble to find the money they need for the checks they've already written. In this case, people don't really get the opportunity to take advantage of the allotted check floating time since their deposited earnings aren't able to cover their costs. Workers are left to scramble to find the needed funds or the check will bounce.

"Same-day payments will make check floating more difficult."

Same-Day Payments

Today, people are used to instant gratification. As a result, they want to have access to the money from their direct-deposited paycheck as soon as possible. Luckily, the National Automated Clearing House Association has listened to these requests. Starting in September, the organization will roll out a three-phase implementation process for same-day processing.

While this is exciting for many people, same-day processing of financial transfers – such as direct deposit – means there will be less opportunity for employees to take advantage of check floating. Since the funds will be taken out almost immediately, people will need to make sure they have the necessary amount in the account to cover the checks they've written.

Check Kiting

One of the largest dangers with float time is check kiting. In this practice, fraudsters will write a series of checks in increasing amounts, according to National Mortgage News. This inflates the bank account to take advantage of the grace period between when the check is deposited and when it actually clears. While employees may like the idea of check floating, businesses encounter more serious issues in the form of criminals intending to steal their money.

With same-day ACH, however, check and ACH kiting will become less prevalent, due to the reduced amount of float time.

Employees across the country are used to taking advantage of check float to ensure the rest of their expenses are taken care of. By writing a check on the same day their paycheck is sent via direct deposit, workers can guarantee the necessary funds are there when the check amount is actually deducted. The implementation of same-day processing, while beneficial for a number of reasons, will make the concept of check float a thing of the past. People will need to change their practices to avoid bounced checks and other unfortunate circumstances.

Contact us to learn more about ACH payroll processing and check floating


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