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

September 4, 2019 by Eduardo Lopez
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Paper checks are one of the most costly ways you can collect payments from your customers. Many businesses think getting paid by check is free, but this couldn’t be further from the truth. Paper checks are loaded with labor costs, processing fees, and hidden markups. Last year alone, North American businesses processed over $18 trillion in paper checks, and it cost them a staggering $550 billion in profit due to delays, labor, and errors.

With costs like that, it’s no wonder why businesses have been shifting away from paper checks in favor of digital alternatives that offer more convenience, data, control, and automation. These improvements can help companies slash the costs associated with paper processes while greatly reducing inefficiency and payment fraud risk.

In the article below, we’ll explore what it actually costs your business to accept paper checks and take a look at alternative payment options.

The Real Cost of Accepting Paper Checks

Paper checks are 10 times more costly to businesses than digital payments. This is because there’s more than processing fees to take into consideration — 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 price of the check and shipping. 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.

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

Slide - Deconstructing the Costs of Paper Check-1

And if some of those checks bounce, things can turn ugly pretty fast for your business. If you deposit a check that bounces, you can add in a fee to your bank for returning the check, in addition to having the headache of collecting the money you’re due.

Processing paper checks isn’t just expensive, it also slows your payment process down, which 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 something your business should worry about. With solutions like Paystand, you can receive payments in minutes. The best part? You don’t have to pay any transaction fees again (we’ll get to that later in the article).

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

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

5 Common Payment Myths About Accepting Paper Checks

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

With conventional checks, you don’t know when or if you’ll be paid until the check arrives. 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, which significantly improves cash flow.

Recommended Reading: Controller’s guide to B2B payment optimization (ebook)

 

2. “Checks are free. We can’t afford to lose our payments to fees.”

Digital payments can save you a lot of money. New payment options like eCheck or Paystand’s Bank Network, which are built upon bank transfers, cost as little as $0 per transaction to a maximum of $2.50 for up to $25,000 - that’s just 0.01%! As you know from the estimates above, the actual costs for manually handling and processing paper checks is significantly higher.

 

3. “Our clients prefer using checks. They won’t use digital payments.”

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 costs you much less. And when you set up an autopay option, your customer can “set and forget” an automatic payment to you every month, so you always get paid on time.

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

The Federal Reserve Payments Study - 2018 Annual Supplement
(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. With the right payment platform you can accept ACH, eCheck, and debit and credit cards in a single system. We take this one step further and offer customers zero-fee payment rails with a consolidated view of payments and settlements in one dashboard.

Recommended reading: How to accept direct bank payments online (Guide)

 

5. “We can’t afford to implement digital payment solutions.”

Not a problem. You can easily drop a payment gateway into your existing website. 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 also build a fully customized payment experience.

Recommended Reading: How to Digitize the Enterprise Cash Cycle - Payments (Blog)

 

Top 3 Payment Alternatives to Paper Checks Ranked


Best Option: Paystand Bank Network ★★★★★

The Paystand Bank Network is a zero-fee payment rail that offers access to real-time fund transfers and is the easiest and safest way to send and 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, set up 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.


Bottom Line

It’s extremely costly for businesses to process paper checks. By conservative estimates, it can cost your business 10x more to accept a check than to receive a digital payment. 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 instantly.

We often hear our customers rave about how easy it is to send and receive money with Paystand. A few taps or clicks and a bill can be paid from anywhere in the world.

If you would like to learn how easy it is to switch to digital payments and automate your cash cycle, speak with one of our experts at support@paystand.com or call us at 1-800-708-6413.

Tags:   Payments, Paper Checks, Digital Payment, Paystand Bank Network