The Check Clearing for the 21st Century Act, also known as Check 21 allows a paper check to be converted into an electronic image in a process called check truncation. Electronic check exchange reduces costs associated with sorting, transporting and reconciling of paper checks as the conversion may occur at any time during the life cycle of a check.

A process of check truncation replaces the paper check with an electronic image containing essential information from the original check. When a store deposits a check that has been paid to it to its bank, the check’s information can be processed electronically, after which the information can be sent to the Federal Reserve, likewise electronically for processing. In effect, the store’s account will be credited while debiting the account of the check issuer.