Are Paper Checks Becoming Obsolete?

Over the last several decades, I have seen the introduction of many technologies in the businesses I have served: the PC, the internet, easy-to-use accounting software, and electronic payment methods. These technologies have made business much more efficient and require much less overhead to manage. One thing that has stubbornly not changed all that much is the continued reliance by businesses on paper checks to pay their vendors, banks, employees, and the like.

Paper checks have existed for many years, perhaps millennia if you believe certain sources, and they once were the most accepted way to pay others owed amounts. However, once electronic payments became easily accessible to all, using paper checks lost much of its purpose.

I was the CFO of a global consulting firm for 10 years and have since been helping clients with their accounting and payment processes. These days, efficiency is king, and I am constantly amazed by the number of new clients and prospects who are still using paper checks and who are resistant to change.

From my direct experience handling tens of thousands of transactions, I’ve seen that paper checks—especially those mailed with your company’s bank account information—should be significantly reduced, if not eliminated altogether. Yet, I often encounter savvy, experienced business owners and operators who still print, sign, and mail checks. With that in mind, I thought it would be useful to outline some of the most common reasons people continue using paper checks, along with alternative perspectives that may help reframe their thinking.

The most common misconceptions about paper checks:

1. Checks are safer than electronic transactions such as ACH or wires. Mailed checks can be easily intercepted, allowing fraudsters to obtain bank information, create counterfeit checks, and attempt to cash them or use them for payments. By contrast, electronic transactions like ACH typically include multiple layers of security and control, making them a safer and more reliable option.
2. Checks can be used to control cash flow. Businesses regularly use various techniques to optimize their cash flows. One of those techniques used to be writing checks and mailing them at various times, knowing that they would not be “cashed” until days or even weeks afterward, thus giving a cushion, albeit a very imprecise one. Cash can now be managed much more effectively with electronic transactions – specifically, ACH transactions can be set up to go on dates in the future, and the tools that can be used to help business owners predict cash flow are much more effective and easier to use than they used to be.
3. Checks are cheaper than electronic payments: An ACH payment may cost 50 cents or less, depending on your bank relationship. By comparison, a paper check requires purchasing check stock, maintaining a printer, using envelopes, paying for postage, and dedicating staff time to print, sign, and mail it. When you add it all up, each paper check typically costs far more than a comparable ACH. Multiply that across hundreds of payments each month, and the cost difference quickly becomes significant.
4. My vendors don’t want to receive electronic payments: While this resistance has been diminishing, there are still companies that would rather receive a physical check than an electronic transaction. Usually, the reason is one of those above, and some education can convert many to electronic payments. Benefits include receiving money more quickly and efficiently, and since no deposit process is necessary, the cost of receiving electronic payments is at least on par with and likely cheaper than receiving paper checks.

For vendors that will not accept electronic payments, we usually recommend that our clients move to an automated payment system such as Bill or Ramp. These systems allow significant control over the entire disbursement process and can send checks when necessary. They are safer than sending a company check because the bank information on the check is that of the vendor, not of your company. These systems are safer and keep your overhead down.

If you have any questions about how to make your payment process more efficient, effective, and safer, contact me, Todd Ellis, at 617.447.2770!