How much is it costing your business to accept paper checks?

Sep 4, 2019 by Eduardo Lopez

Paper checks are one of the most costly ways to collect payments, even though many businesses think getting paid by check is affordable compared to other methods. In 2021, 91% of organizations across the United States continued to receive checks — even though nearly as many understand the upfront costs and risks associated with this payment form.

Of course, there are also many indirect costs to check processing, such as labor costs and processing fees. The bill can quickly eat into your bottom line — and that's before potential errors.

It's no wonder why businesses have been shifting from paper checks to digital alternatives that offer more convenience, data, control, and automation. The 2020 pandemic only accelerated the shift as consumers demanded contactless payments.

Ditching paper-based payment methods can help companies cut the costs associated with paper check processes while greatly reducing the amount of manual work and payment fraud risk. And in most cases, the solution will integrate seamlessly with your ERP, making it easy for AR teams to navigate.

But before we get into how businesses are leveraging digital payments, let's explore what it actually costs your business to accept paper checks and alternative payment options.

The Real Cost of Writing Paper Checks

Paper checks are 10x more expensive for businesses than digital payments because there are more than just processing fees to consider — such as manpower and incidental costs — which are not included when processing payments via digital alternatives.

Bank of America estimates that a check can cost you anywhere from $4 to $20, based on the check price and postage. And that doesn't even take into account the time your finance team spends writing, mailing, collecting, and reconciling the check. Similarly, the Wall Street Journal reports that a business can easily spend up to $25k on materials, manpower, postage, and bank fees.

We ran the numbers to give you a better idea of what this looks like in practice. Here's a breakdown of what it would cost your business just to process an average of 5,000 checks per month:

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And from an AR perspective, if some of those checks bounce, things can turn ugly pretty fast. If you deposit a check that bounces, you can add in a returned check fee along with the headache of collecting the money you're due.

The problem is that processing paper checks isn’t just expensive; it also slows your payment processing workflow down. This, in turn, can increase your Days Sales Outstanding (DSO) and negatively impact your cash flow.

Thanks to the advancement of digital payment solutions, these manual processes are no longer necessary. With ERP integration, you can receive payments in minutes. The best part? You won't have to pay any transaction fees depending on your payment solution. Yes, really.

So what's stopping finance professionals from switching to electronic payments?

5 Common Payment Myths About Accepting Paper Checks

Unfortunately, many businesses don't know they should be leveraging these payment options because of misinformation and common myths around payment methods and paper checks.

Let's look at the top 5 myths holding businesses back from switching to more cost-efficient payment methods.

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1. "Our customers pay us by check, and it works just fine."

In reality, it "appears" to be fine. But when you look at the actual time and effort that goes into payment processing, paper checks just aren't worth it.

With conventional checks, you don't know when or if you'll be paid until the check arrives. If you have a bank lockbox arrangement, you'll have to wait for the checks to be processed in bulk and then reconcile payments. Never mind the late payments run around.

But with digital payments, you know immediately when a payment is made — no more waiting for a check that's "in the mail." And you can get your money in just a few days, significantly improving cash flow.

At the same time, your customer might be able to take advantage of early payment discounts, save time, and track their payment. In fact, they may already be using electronic payments. According to the 2022 AFP Payments Benchmark Report, 78% of B2B organizations already use ACH alone.

In other words, electronic payments are a win-win.

2. "Checks are free. We can't afford to lose our payments to fees."

As we've mentioned, checks are hardly free. Even if it only costs you $4 per check to process, paper checks as a payment option simply don't make sense.

Digital payments, meanwhile, can save a lot of money. Even credit card processing costs aren't nearly as steep as paper checks. New payment options like eCheck or Paystand's Bank Network are built on bank transfers and can cost little to nothing per transaction!

Here are the numbers for different electronic payment options:

  • Bank-to-Bank Transfer: $0.00-$0.20 per transaction
  • ACH: $0.20 - $1.50 + 0.0% to 1.5% per transaction
  • Credit Cards: 2% - 4.35% per transaction + payment processor costs

The actual costs for manually handling and processing paper checks are significantly higher.

3. "Our clients prefer using checks. They won't use digital payments."

This misconception comes from the idea that if you change your accepted payment methods, you'll lose clients. But that's simply not the case, especially in the B2B space. When you begin to accept credit cards, ACH, eChecks, and bank-to-bank transfers, your customer's AP team will be delighted. Because just like your AR team, their accounts payable will be able to keep an auditable trail of payments. And they'll save on postage.

We've found that when businesses make digital payments available, their customers flock to the online option. Paying online is easier for your customers and actually saves them time (and money). Paying can be as simple for your customer as paying by credit card, but it costs you much less. And when you set up an autopay option, your customer can "set and forget" an automatic payment every month, so you always get paid on time.

Recommended reading: How to move over 30% of payments to digital in months (Case Study)

 

 

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(Source: The Federal Reserve Payments Study - 2018 Annual Supplement)

4. "We can't deal with multiple systems for each payment option."

You don't have to. Many best-in-class payment platforms (like us, here at Paystand) deal with this complexity for you.

The Paystand platform can accept ACH, eCheck, and debit and credit cards. In addition, we take this one step further and offer customers zero-fee payment options with a consolidated view of payments and settlements in one dashboard.

We can't speak for every platform, but Paystand is completely automated. Your team only has to send an invoice. We'll take care of the rest.

5. "We can't afford to implement digital payment solutions."

When you compare the expense and lack of visibility related to checks, this is just no longer the case.

Furthermore, electronic payment solutions save your team hours, if not days, of time wasted on data entry and follow-ups. So, in reality, businesses accepting electronic B2B payments save significantly on processing and error costs.

Plus, the actual software is fairly simple.

You can include payment links in emails and even add a Pay Now button to your invoices. We've seen businesses get up and running in a matter of days without the need for IT services or a Web developer. Of course, with API access, you can build a fully customized payment experience — all without hiring someone new to take care of the platform.

Top 3 Payment Alternatives to Paper Checks Ranked

You may be ready to accept electronic payments. But where should you start?

Not every solution offers a vast array of payment options or customization. We're a little biased, but here are our top payment options for AR teams:

Best Option: Paystand Bank Network ★★★★★

The Paystand Bank Network is a zero-fee payment option that offers access to real-time fund transfers and is an easy and safe way to receive money. Every transaction is recorded on the blockchain to assure the payment is free of tampering (Assurety).

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Most Common: Automated Clearing House (ACH) ★★★☆☆

ACH payments take no more than a day or two, making it faster than paper checks but slower than the Paystand Bank Network. Because the funds must be available in the account when a payment is made, you never have to worry about paying for a bounced check. Unfortunately, the setup is complex and because payments can be reversed by the seller in the event of a dispute, accepting ACH comes with the increased risk of losing the payment.

Least Recommended: Credit Cards ★☆☆☆☆

Credit cards provide easy access to a source of credit and are convenient, especially for smaller one-off purchases. However, these fees can get extremely costly for a business processing high volumes of transactions or larger payments. For clarity, fees tend to range between 3-4% of the value of each invoice.

The Bottom Line

It's extremely costly for businesses to process paper checks. For example, it can cost your business 10x more to accept a check than to receive a digital payment by conservative estimates. Additionally, a paper check would take up to three weeks longer for you to receive, as opposed to a Paystand Bank Network transfer that can happen in seconds.

We often hear our customers rave about how easy it is to receive money with Paystand. In just a few clicks, a bill can be paid from almost anywhere in the world.

If you want to learn how easy it is to switch to digital payments and automate your cash cycle, book a demo with one of our payment experts today.