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What is a Substitute Check?

Substitute checks are copies, normally electronic, of a standard paper check. The enactment of the Check Clearing for the 21st Century Act (The Check 21 Act) on October 28th of 2003 began allowing the U.S. citizens to practice check truncation, a process of extending electronic copies of checks in order to eliminate needs for physical documents for completion of check-clearing.

But, can you cash a substitute check? There are several other things you ought to get familiar with prior to handling your money this way; let us break them down for you.

What is a Substitute Check? (And what it is not)

First and foremost – financial institutions are the only party authorized to create and extend substitute checks. In case of an individual or a business creating paper check images to finalize a deposit, banks that receive the deposit are to extract information from those images to eventually create substitute checks. That said, images and/or photocopies of the check are not legitimate substitute checks.

A converted check is a physical check, written in order to initiate electronic payments. This check is not a legitimate substitute check either.

substitute check

Who Are Major Users of Substitute Checks?

Substitute checks are generally used by banks to receive funds from the other banks and financial institutions. When writing checks to individuals and businesses, they create no substitute checks themselves. As these are made at the bank, the transaction made with them is, of course, subject to the standard laws of check transactions, not the electronic transfers. There are, however, more rights given to you – we recommend further reading about the Check 21 Act.

How to Identify a Substitute Check?

It is mostly simple to identify one. The phrase ‘This is a legal copy of your check; you can use it the same way as the original check’ indicates one of these. It is normally larger; an image of the original shows in the upper right corner of the substitute check. On the bottom of the substitute check, the bank places the MICR lines identical to the one on the original, except there is a digit 4 number in front of it, indicating the substitute is to be collected.
The image, along with the additional information, can be printed out in order to create an IRD – Image Replacement Document. With an IRD, you can document previously made payments as a substitute for the check you used. When the original, canceled check is not available, this document can be used in order to prove you covered certain expenses.

Check Issuing Service Issues

An immense amount of benefits was brought to banking since the introduction of electronic check extending. The processes are very swift, and cases of fraud are easily brought to your attention. However, there some problems that come with using substitute checks. In case of issuing a check prior to having money in your account, checks are to be cleared faster; float time is not something you can count on, but overdraft fees and bounced checks sure are.
Make sure to balance your account prior to issuing a check.

Substitute checks, being copies, obviously have certain action limits compared to the original check, but just issuing-wise. However, they are fully legitimized by the Check 21 Act and allow normal money-extending.

While sometimes the original checks can be unavailable for use momentarily, substitute checks can certainly be circulated, if they are legitimate. For further reading, we recommend you visit our blog; you can also find us on Facebook and YouTube, or reach us on LinkedIn or Yelp.