Paper Check | B2B Finance Glossary

What is a Paper Check?

A paper check is a manual form of payment filled out, dated, and signed by the payer. It allows the payer to pay a specific amount to the payee and directs a bank to pay that money to the payee.

What are the Different Types of Paper Check Payments?

There are three main types of check payments include the following:

• Cashier’s checks. A cashier’s check is guaranteed by the bank and signed by a bank cashier. This makes the bank responsible for the check’s funds, which is why cashier’s checks are usually required for large purchases.
• Certified checks. A certified check verifies that the payer has enough money to honor the full amount, so the check cannot bounce. To cash a certified check, the payee must bring it to the bank from which it was drawn, and the bank will verify its authenticity.
• Payroll checks. A payroll check is another name for a paycheck; this type allows an employer to pay employees for the work they provide to the company. Today, most payroll is done via direct deposit instead of paper checks.

How Does a Paper Check Payment Work?

A paper check is delivered from the payer to the payee (usually through the postal system). Then, the payee brings the check to the payee’s bank, which issues the corresponding funds. Finally, the payer’s bank shifts the funds from the payer’s account to the payee’s account, fully settling the funds and completing the transaction process.

Paper checks make it possible for two parties to exchange funds without the need for physical currency to be present. They are commonly used as payments for bills, B2B transactions, real estate, and other large fund transfers. Checks are also used in certain instances to give money as a gift.

If a paper check is lost or stolen, a party that the check was not intended for cannot cash it. Checks are typically more secure than cash payments – especially for large transactions. However, checks are highly susceptible to fraud.

What are the Downsides of Paper Check Payments?

Over 50% of all B2B payments are made via paper check. However, checks can easily be tampered with. Today, payments made via paper check become the victim of fraudulent schemes 74% of the time.

Paper checks are also riddled with hidden costs: a standard business can cost anywhere between $4 and $20 to process a single paper check. That means, for businesses that process 5,000 paper checks per month, it will inevitably cost those businesses $1.3k daily, $40k monthly, and $480k annually just so they can accept check payments from their customers and bring in mission-critical revenue.

Paper checks also harm the economy as a whole. Today, they are responsible for draining up to $1T in errors, delays, and soft costs each year.

On top of all that, paper checks are subject to mail float – the time it takes for a check to go from the payer to the payee in the postal system. As a result of mail float, paper check payments can take weeks to get from the sender to the receiver and can greatly extend DSO as a result.

What are Alternative Forms of Payments to Check Payments?

Because of the long length of time it takes to process paper checks, and because they come with such a high risk of being tampered with, checks are largely inefficient when it comes to B2B payments. Still, about half of all B2B payments are made via paper check today.

The reality is that while almost every other element of the enterprise has gone digital, B2B payments are still stuck in the dark ages. For finance organizations to enter the future, they must find new alternatives to digitize their payment cycles to ensure fast and secure payments.

While credit cards offer an easy solution that allows companies to move their payments online, the reality is that they are not ideal forms of payment for large B2B transactions. That’s because it can cost merchants as much as 3.5% to process every credit card transaction, which means that companies can lose a portion of their revenue every time they receive customer payments.

Finance organizations need online payment solutions that are cashless, feeless, and intuitive. The Paystand Bank Network makes this possible. It’s enabled by blockchain technology and facilitates online payments between companies without needing credit cards or paper checks. If you’re interested in learning how your company can ditch paper check payments for good, you can schedule a time to speak with one of our payments experts here.