Automate escheatment for accounts payable to save time and money

Despite the growing numbers of electronic and digital transactions, paper checks are still widely used tools for business payments. In fact, according to a 2024 PYMNTS Intelligence report, three-quarters of organizations still use paper checks.

Unfortunately, checks don’t age well and are more likely to go unclaimed than electronic payments, resulting in the escheatment process of reporting and remitting unclaimed property to the state. Escheatment is a compliance headache for most organizations, and checks are front and center.

The good news: There is a tremendous opportunity to improve how unclaimed checks are managed and potentially escheated to the applicable state.

Experts say only a small percentage of companies are in full compliance with the various escheatment processing requirements, due to all the complex state regulations surrounding them. With 55 jurisdictions having laws that require unclaimed property reporting, there is no way to avoid the costs of tracking and processing escheated checks. But there are ways to contain those costs.

Most uncashed checks are for small amounts – small enough for the rightful owner to lose sight of them – but large enough to become a big headache for the companies that need to account for them. Recent advances have allowed for the automation of some parts of the escheatment process, with more on the way.

Automation can decrease the time, energy and money spent processing escheatment, and through increased visibility and digitizing the claims process, may even be able to speed up the process of identifying and returning some of that money to its rightful owners before it becomes escheatable.

Why escheatment is necessary

State governments have the right to take ownership of unclaimed funds based on specific laws and practices built around this escheatment process. In essence, if a business makes payments that go uncashed or holds money in accounts that go untouched, it’s responsible for escheatment.

The cost of escheatment processing can grow quickly because it’s tied to the number of properties rather than their value. It typically costs just as much to process an unclaimed payment of $5 as it does for one of $500 or $5,000. And if the property is not escheated, significant fines and penalties can be levied by the state that date back several years. Add a patchwork of escheatment laws that vary from state to state, and rules that even vary by property type, and the costs continue to mount.

With states facing increasing economic pressures, the focus on escheatment compliance is likely to grow in the coming years.

What’s more, the time and effort spent on the escheatment process creates no true value: The money identified during the process is either returned to its rightful owner or turned over to the state. However, doing it more efficiently can at least reduce some of the costs — and new technologies available because of improvements in smart devices and digitization of payments can do that.

Escheatment is time consuming

Few accounting processes are more manual and time-consuming than escheatment. Just ask Becky Stephens, Assistant Vice President in Business Project Analytics at U.S. Bank, who has worked in escheatment for more than 20 years.

“The first reporting that I was engaged in required us to obtain a list of outstanding checks from our Account Reconciliation Package (ARP) group and manually keying that information into the reporting software,” she says. “There was no integration with other systems, and nothing was automated.”

Whether working with outstanding checks or deposit accounts, the only technology involved was the reporting software. All the information was hand keyed.

“We had to manually close out everything,” she says. “If we wanted to close out the deposit account, we had to go into our online transaction system and debit the funds from every account one at a time using an online transaction application or general ledger ticket.

“Now all of those things are automated,” she says.

Automation to the rescue

In fact, U.S. Bank has developed an automated escheatment solution that brings much needed efficiency to the escheatment process. Among the previously manual tasks it automates are:

• Tracking dormancy to identify escheatable items for multiple jurisdictions
• Sending required communication to unclaimed property owners
• Aging unclaimed property from one status to the next based on applicable laws
• Sending escheatment notifications and reports to relevant government entities
• Updating the unclaimed property system

By linking our automated escheatment solution to a digital treasury management platform, the bank can offer a fully integrated escheatment workflow with automated processes and the benefits of end-to-end visibility.

“The automated escheatment solution that has been developed internally here at the bank for our clients brings much needed automation to escheatment processing. Tracking and monitoring payments has always proven to be time consuming and tedious. This is an area that still requires much manual intervention to be compliant with escheat reporting. I’m very impressed with the automated solution being presented by this team,” says Stephens.

”Imagine a system where uncashed checks are automatically identified and processed as they age, following the rules of the individual applicable jurisdiction, right up until the time the money is either delivered to its rightful owner or turned over to the respective government entity,” says Suha Freij, product manager in Global Treasury Management at U.S. Bank.

U.S. Bank’s solution delivers those end-to-end results, Freij says. She sees advantages for any company that deals with unclaimed property, but highlights obvious benefits for public utilities, commercial real estate entities and health care companies that often deal with stale deposits or small overpayments on accounts.

“Integrating the application with our Check Disbursement Services and the behind-the-scenes operations creates the opportunities for automation and exceptions-based handling of only critical items requiring review,” she says. “This full end-to-end system truly provides a virtually hands-off approach to managing unclaimed property.”

The entire escheatment process is automated, with full end-to-end visibility in the user interface. The service does all the heavy lifting in terms of liability analysis, due diligence mailing, managing the responses and filing the state reports.

“Taking an integrated approach to the escheatment solution allows clients to take advantage of all our Check Disbursement services including account reconciliation, check fraud prevention and access to check images for research,” Freij says. “Clients can also choose to outsource their check printing and mailing process to the bank, completely automating their check disbursements from print to escheatment.”

Next level savings for escheatment in the future

Beyond the increased efficiency and cost savings, the most exciting opportunity of end-to-end automation is the ability to shorten, or even eliminate, the escheatment cycle for some payments.

“We've created some unique tools within the due diligence letter,” Freij says. “We have a QR code so when the person who didn’t cash the $2.50 check because it was too much effort to get it to their bank, or lost or misplaced the item gets their letter, they’ll be able to scan the QR code with their phone. It will take them to a web page that will ask them to validate their identity and give them the option to get paid via Zelle® or ACH.”

With such advances, automating escheatment will continue to get smoother and easier for all parties attached to the unclaimed property.

“As a bank, we are uniquely positioned to offer a better, more automated experience to our clients for escheatment services. We can meet them where they are along their digital journey as they migrate to more electronic forms of payment,” Freij says. “Until the day comes where all payments are electronic, we are here to help our clients every step of the way.”

Contact us to learn more about how automation could make escheatment more efficient and effective.