Depository Transfer Check (DTC)

A type of check that is used when a third-party service provider collects daily receipts from an organization’s locations and deposits it at a concentration bank

What is a Depository Transfer Check (DTC)?

A depository transfer check (DTC), also known as a depository transfer draft, is used when a third-party service provider collects daily receipts from an organization’s locations and deposits it at a concentration bank. Since an organization may expand its business and operate in several locations, it is convenient to use a depository transfer check in order to ensure better cash management for all its locations.

 

Depository Transfer Check

 

A depository transfer check looks similar to a personal check. The difference is that the words “depository transfer check” would be written at the front of the check. It is a financial instrument that is non-negotiable, and it does not require a signature.

The check is also payable to the company’s bank account only. Depending on the company’s geographic location and the concentration bank that is used, there may be a fee that applies.

 

How Does a Depository Transfer Check Work?

A facility manager at each location will gather information about the day’s revenue and send the receipt to a third-party service provider, who collects receipts from all the locations. The third-party service provider will then transfer data on the receipts to a concentration bank, which is a term that refers to the primary bank that an organization uses.

Based on the financial data on the receipts, the concentration bank will create and issue depository transfer checks for each location. The concentration bank will then deposit the checks into the organization’s account. Depending on the bank and the amount on the checks, funds may not be immediately available for use by the company after the check is deposited into the company’s bank account.

 

Depository Transfer Check vs. Automated Clearing House

An automated clearinghouse is now used by many companies as a new replacement. An automatic clearing house (ACH) is a system of transferring funds electronically, which is run by the National Automated Clearing House Association (NACHA).

An automated clearinghouse provides a method for companies to manage transactions related to payroll, invoices, bill payments, direct deposits, and more. It is a preferred way of transferring funds because it is considered to be faster, more efficient, and more affordable compared to other methods.

Although most companies now prefer to use an automated clearinghouse, some older companies continue to use a depository transfer check for depositing their revenue.

 

Financial Implications

Using depository transfer checks is an important part of a company’s financial operations because it allows the business to better manage its cash flows. Being able to regularly deposit its cash into a concentration bank helps the company mitigate risks in insolvency.

Additionally, it improves profitability by putting in place a more organized system to track cash inflows and organize accounts receivable. It can also help avoid risks related to changes in currency and interest rates.

 

Additional Readings

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Depository Trust and Clearing Corporation (DTCC)
  • Online Payment Companies
  • National Automated Clearing House Association (NACHA)
  • Wire Transfer

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