Drop shipping allows for immediate verification and availability of funds, benefiting the depositor and allowing for quicker shipment of goods. However, different regulations and fees may apply, and banks may discourage frequent use for smaller amounts.
Drop shipping means bypassing the usual and standard processes used to clear verifications. Instead of the depository bank posting the check to the appropriate account and then waiting for confirmation from the drawee bank to arrive within a few days, the depository bank contacts the drawee bank directly. The validity of the check is confirmed and the funds are immediately available to the depositor. The money bank in turn proceeds with an immediate debit to the account on which the check was written.
The advantage of this immediate clearing process mostly applies to the depositor. In the event that there is a reason to delay shipping goods until the check clears, going with a drop ship allows the seller to receive quick assurance that the check is valid. The seller can immediately prepare the purchased products for shipment. As a result, the person or entity making the purchase will receive the products in a shorter period of time.
Drop shipping can also be used to make scheduled payments to vendors just before payments are due. This has the advantage of being able to maintain control of the funds for as long as possible. In the event that the check is withdrawn to an interest-bearing account, this approach may result in a significant increase in the amount of interest income generated for the current financial period.
Different regulations govern the use of drop shipping in various jurisdictions. Regardless of the laws set by the country of jurisdiction, many banks and other financial institutions have specific requirements that must be met in order to make use of drop shipping. In many cases, the drawee’s bank will charge the account holder a fee for expediting the payment of the check. It is not unusual for the depositing bank to also charge a fee to the recipient of the check to initiate the process of early cancellation of the check.
In general, banks tend to impose fees that discourage the use of direct mail on checks made for smaller amounts. Depending on the degree of automation used in the bank’s internal systems, drop shipping may require time-consuming manual intervention. For this reason, a bank may discourage frequent use of this type of clearing process unless there are factors that make the use of direct mail in the best interest of the depositor.
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