28th Feb 2019

What is modulus checking and why is it important?

It’s key for your organisation to handle payments efficiently, so your operations run like clockwork. Many businesses choose to send batch payments as it’s quicker, but this creates the potential for human error and fraud. A tool has been developed to deal with this issue – modulus checking.

Modulus checking 101

In a nutshell, modulus checks are carried out to make sure payments aren’t made erroneously or fraudulently. They’re used to validate account numbers and sort codes, typically by confirming they can be paired together according to criteria set down by the financial institution that issued them.

The theory is, if the account number and sort code are validated by a modulus check, they must belong to the payer/payee who provided them, meaning the transaction has been made legitimately. There’s one distinction we need to make. Modulus checks only tell you that a bank account exists. They don’t verify that the details belong to the payer/payee i.e. that they own said bank account.


Here’s how it works

We’ve got the theory down, but to understand modulus checking we need to look at how it works in practice. This tool works to validate bank details by applying a mathematical algorithm to the account number and/or sort code, checking the results against a pre-defined set of criteria to make sure they’re legitimate. It’s worth noting that financial institutions have their own rules and codes for modulus checks – Bacs alone has over 60 for modulus checking Direct Debits and Direct Credits.

Learn more about UK payment schemes such as Bacs with our Beginner’s Guide to Payments.


What are the benefits?

This brings us to the second question this blog seeks to tackle. Why is modulus checking important? Basically, it offers various benefits that make it easy to process payments safely and efficiently.

Perhaps most obviously, it helps you avoid bounced payments (and the associated fees, which vary from bank to bank), by automatically highlighting invalid bank details ahead of time. Bounced payments could destabilise your cash flow (poor cash flow is cited as the reason for 82% of small business failures), so modulus checks offer you the means to protect these vital revenue streams.

Another advantage of modulus checking is that it gives you the ability to schedule payments, as it offers a certain degree of reliability. Scheduled payments are especially popular for organisations which collect funds regularly via Direct Debit, e.g. subscription-based businesses such as gyms.

Also, if you’re collecting paperless Direct Debits, modulus checks are now mandatory. The system for paperless collections (AUDDIS) requires modulus checking to be used to validate bank details at the point of sale. As a side note, going paperless has been shown to provide savings of up to £1 billion for the UK’s financial sector alone, so embracing paperless collections could boost your coffers.


Protecting your data

There’s one benefit of modulus checking that we’ve yet to talk about. It helps tackle human error, as it validates any bank details keyed into systems by staff. Mistakes are all too easy to make, so human error is a big issue for many organisations. One of the risks of using spreadsheets – a tool often used for sending payments – is that 1 in every 100 cells has an error. Also, data shows that 25% of data breaches are caused by human error, so modulus checking serves as a tool against fraud as well.


In the name of compliance

Modulus checks are also important for compliance. This rule we need to look at here is the EU’s General Data Protection Regulation (GDPR). It places the onus on you to protect personal customer data such as bank details. If you don’t you could face fines equalling either 4% of your total global revenue or €20 million – whichever is higher. This means that modulus checks can help you avoid significant costs, as they prevent the kind of human error that could you up to data theft.

Find out more about GDPR with this handy AccessPay guide.


Why AccessPay?

As part of our platform, AccessPay offers the best-in-class modulus checking software you need to process payments efficiently. If it spots any errors e.g. an invalid sort code or account number – when checking payment files, it’ll issue a warning. You can even click on the warning to see what the issue is, and our software will also inform you the modulus check has failed so you can take action.

There’s a feature which makes our modulus checking software invaluable to organisations that need to process payments in a timely manner. When the modulus check identifies problem payments, a ‘suppress and proceed’ button will appear. If you click it, you can suppress the transaction – the others in the file will still go through, while you investigate the problem, limiting any disruption to your payment processes. You can also leave a note informing colleagues what the issue is.