Are Paper Payments Slowing Your Supply Chain?
Recent pandemic issues have had a big effect on the supply chain. You might not know that paper payments in your supply chain are slowing down your entire chain, too. Learn more about why companies choose to use paper payment processes and why they are a bad idea to keep as part of your supply chain.
Why Do Companies Still Use Paper Processes?
While most B2C deals are done digitally, specifically through credit or debit cards, in B2B deals, a shocking number of companies still choose to pay invoices with paper checks. Why do they do it? What’s so great about paper payments that make companies want to stick with it even though there are faster and more efficient options out there?
One of the biggest reasons accountants don’t update their payment processes is comfort. They don’t want to learn new methods and aren’t changing. They’ve always dealt with paper checks; it’s what they know and understand.
There’s no long list of benefits or reasons to stick with paper payments. But, unfortunately, resistance to change costs companies purely because they aren’t utilizing more efficient and less error-prone processes.
The Downfalls of Paper Payments
Accepting paper payments in your supply chain means you’re not setting yourself up for success. Here are five of the biggest downfalls of paper payments:
1. Operating Costs
Paper payments require more personnel hours to handle, track, and fulfill than digital options. More capital is spent on operating and labor costs, making paper checks more expensive to process than other payment options.
2. Manual Processing
Paper checks require manual processing by both your internal AR team and your bank. Because this process is limited by a person’s ability to work, there is potential for backlogs and delays in processing.
3. Processing Speeds
Paper payments are processed only as fast as people can work. If an influx of payments comes in simultaneously, there will be a waiting list of payments to process. Depending on the size of your business, this waiting list might remain in your accounting department for days before a person ever sees it. (Or, if the payments are time-sensitive, you might end up paying hours of overtime.)
It’s easy to see how this affects your supply chain payments and client relations. Payments that take days to process mean shipments of essential inventory are delayed.
Humans make mistakes. The more humans are involved with important transactions and sales, the more likely errors will be. Paper payments require the most touches to be processed, making them the most prone to error of any payment process.
With each mistake, more time and effort is wasted identifying, addressing, and resolving the error. Even minor errors can incur labor costs to resolve an issue.
In every meaningful metric, paper checks are an inefficient form of payment processing compared to other options. While they were once the bedrock for every company and considered a standard and preferred payment option, that is no longer the case. There are better, faster, and more cost-efficient B2B payment options.
3 Benefits of Going Digital
Your supply chain efficiency is improved by going digital. Here are the three biggest benefits of switching to digital payments in your supply chain:
Digital payments are automated. Once information is inputted within a computer system, there’s no chance for that information to be altered without someone actively changing it. This means that digital payments have fewer errors, and most errors can be traced back to the initial data entry where a figure or data point was inputted incorrectly.
2. Improved Cash Flow with Automatic Payment Processing
Payments that are tied up in delayed processing are useless. You can’t pay salaries, leases, or other essential costs with delayed payments. Switching to automatic digital payments improves your cash flow by processing payments instantly, allowing you immediate access to your money.
3. Lower Costs
Paper payments can be loaded with fees and soft costs. Choosing to go digital alleviates overhead costs. While there are some fees, the costs are fixed, allowing for better financial planning.