How Much is it Costing Your Business to Accept Paper Checks?
Paper checks are one of the most costly ways to collect payments. Still, many businesses think getting paid by check is the most affordable method. In 2021, 91% of organizations across the U.S. continued to receive checks, even though they understand the associated costs and risks.
Of course, there are also many indirect costs to check processing, such as labor and processing fees. The bill can quickly eat into your bottom line — and that's before potential errors.
It's no wonder 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 costs by reducing the amount of manual work and payment fraud risk. In most cases, the solution will integrate with your ERP, making it easy for AR teams to navigate.
Let's explore what it 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 as there are more than processing fees to consider, such as workforce and incidental costs, which are not included when processing payments via digital alternatives.
Based on the check price and postage, Bank of America estimates that a check can cost anywhere from $4 to $20. That's without considering the time your finance team spends writing, mailing, collecting, and reconciling checks. The Wall Street Journal reports businesses can spend up to $25k on materials, staffing, postage, and bank fees.
We ran the numbers to have a better idea of what this looks like in practice. Here's a breakdown of what it would cost your business to process an average of 5,000 checks per month:
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.
Processing paper checks is more than just expensive. It also slows your payment processing workflow down. This can increase your DSO and impact your cash flow.
These manual processes are no longer necessary thanks to digital payment solutions. With ERP integration, you can receive payments in minutes. The best part? Depending on your payment solution, you won't have to pay any transaction fees.
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.
1. "Our customers pay us by check, and it works fine."
In reality, it "appears" to be okay. But paper checks aren't worth it when you look at the time and effort that goes into payment processing.
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 a few days, improving cash flow.
At the same time, your customer can take advantage of early payment discounts, save time, and track their payment. They may already be using electronic payments. According to the 2022 AFP Payments Benchmark Report, 78% of B2B organizations already use ACH alone.
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 don't make sense.
Digital payments, meanwhile, can save a lot of money. New payment options like eCheck or Paystand's Bank Network are built on bank transfers and can cost little to nothing per transaction! Even credit card processing costs are less steep than paper checks.
Here are the numbers for different B2B Payments 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 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 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 saves them time (and money). Paying can be as simple for your customer as paying by credit card, but it costs 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)
(Source: The Federal Reserve Payments Study - 2018 Annual Supplement)
4. "We can't deal with multiple systems for each payment option."
Many payment platforms, like Paystand, deal with this complexity for you.
The Paystand platform can accept ACH, eCheck, and debit and credit cards. We take this 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 entirely automated. Your team only has to send an invoice, and we'll take care of the rest.
5. "We can't afford to implement digital payment solutions."
This is no longer the case when you compare the expense and lack of visibility related to checks.
Electronic payment solutions save your team hours, if not days, of time wasted on data entry and follow-ups. In reality, businesses accepting electronic B2B payments save significantly on processing and error costs.
Plus, the actual software is 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 days without needing IT services or a Web developer. Of course, with API access, you can build a fully customized payment experience 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 ensure the payment is tampering-free (Assurety).
Most Common: Automated Clearing House (ACH) ★★★☆☆
ACH payments take up to 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 incredibly 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, which can happen in seconds.
Our customers often wonder at how easy it is to receive money with Paystand. A bill can be paid from almost anywhere in the world in just a few clicks.
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.