For businesses to ensure that money flows smoothly from one account to another, they must familiarize themselves with different bank regulations and systems. When making a wire transfer, ACH transfer, or check deposit, banks follow a set of processes that determine when the funds will be available in the recipient’s bank account. In an age of real-time payments, there might be an expectation that deposits are always accessible on the same day, if not immediately.
That’s not always the case, and understanding the basics of cutoff times will help you avoid bottlenecks, disruptions in cash flow, or hefty bank fees. Here, we’ll provide a definition of cutoff times, explain why they’re crucial, and explore how they might affect business money movement.
What are Bank Cutoffs?
Bank cutoffs refer to the specific time that banks stop crediting same-day deposits. If a business deposits a payment before the cutoff time, the funds are typically available the same day. If the business misses the cutoff time, the transaction won’t be processed at least until the next business day. Cutoffs vary widely and depend on the bank, location, and type of deposit. Cutoff times for most commercial banks fall between 2:00 PM local time and 11:00 PM local time.
It’s important to keep different time zones in mind when it comes to cutoff times, especially if transactions are made on an international scale. If a bank’s cutoff time is 5:00 PM EST, but you make a deposit at 5:00 PM PST, the payment will not be considered a same-day deposit and will take longer to clear.
Most commercial banks have varying cutoff times for different deposits—wire, ACH, check— and whether a deposit is international or domestic. Familiarizing yourself with cutoff times is important, as they vary depending on where you bank and what regulations the banks follow.
Why do Banks Impose Cutoffs?
To accurately process and clear payment orders, banks follow cut off times. This helps to enable the smooth and seamless money movement between two transacting parties. The consistency of financial institutions gives senders adequate time to confirm that they have enough funds in bank accounts to send payments to recipients. The consistency of cutoff times also enables businesses to confidently send payments and avoid delays.
Businesses must track their day-to-day cash flow and schedule transactions—they must also be familiar with each major bank’s cutoff time to ensure successful same-day transactions. Missing a cutoff can disrupt cash flow.
How do cutoffs affect payment delays and holds?
Sometimes, a bank issues a deposit hold or temporarily withholds some or all funds from clearing to an account. For example, for a deposit of $2,000 or more, a fraction of the total may appear the same day, while the remainder requires more time to process. Even though the money was credited to an account, gaining availability to the total amount can take longer.
Although every bank follows their own policy, they mainly hold payments to assess if they’re legitimate. After a cutoff time, the bank may check the involved bank accounts—both sender and receiver— to fully validate the deposit. The purpose is to protect accounts from having to pay unwarranted fees.
One of the main reasons for a hold on a business account is if the sender lacks sufficient funds to pay for the deposit. In this case, the sender and receiver have to pay one or multiple penalties, such as non-sufficient funds fees (NSF) or overdraft fees.
Bank cutoffs refer to the time of day when banks stop crediting deposits. Typically, banks provide a sufficient amount of time for money to move from one account to another without incident. If a sender’s bank account does not possess enough funds to credit their payments, they can face a potential hold over the deposit, which results in unwanted fees.
Overseeing different cutoff times is necessary, but it is not straightforward. It requires a comprehensive understanding of the movement of money and the ability to to monitor it across various time zones, as well as familiarity with each bank’s cutoff policies. Without paying attention, it can be easy to lose track and fall into delayed transactions.
To avoid the consequences of missing a cutoff, businesses must ensure that they have full, real-time visibility over money movement. With tools that integrate with banks to help process payments, you can have secure control over funds and avoid being impeded by bank cutoff times.
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Modern Treasury offers a feature for custom and default processing windows so customers can issue payment orders ahead of a bank's particular cutoff time. To learn more about how Modern Treasury’s API can ensure seamless money movement, sign up for a sandbox, or reach out to one of our payments advisors.