Glossary

Check drafting glossary

The terms you'll meet when you get paid by check draft, defined in plain English: from remotely created check and blanket authorization to MICR line, E-13B and Regulation CC.

A

ACH debit (also: eCheck): An electronic payment that pulls money from a bank account through the ACH network, under Nacha's rules. Often called an eCheck. It's not a check, and it needs a payment processor.
Authorization: The account holder's permission to draw a check on their account for a stated amount or cap, payee, purpose and period. Every check draft needs one, and the business that deposits it should be able to prove it.

B

Blanket authorization (also: standing or ongoing authorization): An ongoing authorization covering more than one draft: the payer approves once for drafts up to a cap per draft, at an agreed frequency, until an end date.

C

Check draft (also: demand draft): The everyday name for a remotely created check: a check the payee creates on the payer's account, with the payer's authorization and without their signature.
Check run: The scheduled batch in which a business's accounts payable team prints, signs and mails checks, often weekly or every two weeks.
Check stock: Blank security paper for printing checks, usually letter-size with the check on top, with features that show copying or tampering.
Clear band: The strip along the bottom 5/8 inch of a check reserved for the MICR line. Nothing else should print there.

D

Demand draft: Another name for a remotely created check, common in older banking usage.
Depositary bank: The bank where a check is first deposited: for a check draft, the payee's own bank.
Drawer: The account holder a check is drawn on. For a check draft, that's your customer, the payer.

E

E-13B: The MICR character set used on checks in the United States: the digits 0 to 9 and four symbols (transit, on-us, amount and dash), printed at fixed sizes and positions.

F

Funds availability: When deposited money can be withdrawn. Regulation CC sets maximum hold periods for checks, and each bank publishes its own policy.

L

Legend: The statement printed where a signature would be on a remotely created check, saying the account holder authorized it. Banks often specify the wording.

M

MICR line (also: magnetic ink character recognition): The line of magnetic ink characters along the bottom of a check: the routing number, account number and check number, plus an amount field the bank encodes.
MICR toner: Laser printer toner containing iron oxide, so the MICR line can be read magnetically. Many banks prefer or require it for checks.

O

On-us symbol: The E-13B symbol (⑈) that marks the account number field on the MICR line.

P

Paying bank: The bank the check is drawn on: for a check draft, your customer's bank, which pays it from their account.
Payee: The person or business a check is payable to. For a check draft, that's you.
Positive Pay: A bank service that compares each check presented against a list of checks the account holder issued. A check draft isn't on that list, so the payer may need to approve it as an exception.

R

Regulation CC: The Federal Reserve's rule (12 CFR part 229) on check collection and funds availability. It defines remotely created checks and, since 2006, includes a warranty that each one was authorized.
Remotely created check (also: RCC): A check that isn't created by the paying bank and doesn't bear the account holder's signature, created by the payee using the account holder's details and authorization.
Remotely created payment order: The FTC's term in its Telemarketing Sales Rule for remotely created checks and similar payment orders created without the account holder's signature.
Return: A check sent back unpaid by the paying bank, for reasons such as insufficient funds, a closed account, a stop payment or a claim that it wasn't authorized.
Routing number (also: ABA routing transit number): The 9-digit number identifying a bank, printed between transit symbols on the MICR line. Its last digit is a checksum, so many typos can be caught.

T

Transit symbol: The E-13B symbol (⑆) printed on each side of the routing number on the MICR line.
Two-person approval: A control where a draft above a set amount needs a second teammate's approval before it can print.

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