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Paper Checks be Extinct by 2026?

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The first known payment by paper check occurred in the early eleventh century when an Iranian traveler visited the city of Basra and gave a merchant written instruction ordering his bank to make a payment from his account. While the U.S. economy continues to rely on checks as a form of payment , that reliance is steadily decreasing year after year. Just as the introduction of the paper check provided convenience and safety over paying with cash, the introduction of electronic payments increased convenience and safety over the paper check. So, how can your business eliminate the need for paper checks entirely?

According to the Philadelphia Fed Study, the number of paper checks is steadily declining every year. There were 28 billion checks processed in 2009 and has been dropping 1.2 billion per year since then. At this pace, the paper check will be extinct by 2026.

Advocates for groups who typically rely on paper checks, such as the elderly and un-banked, claim that eliminating the check would cause an undue burden on some people. Many still believe that the check system is immune to fraud and is safer than electronic forms of payments. What these individuals don’t know is that once a check leaves their hands it has a very short lifespan.

In October 2003, Congress passed the Check Clearing for the 21st Century Act (Check 21). Before Check 21, checks had to be physically transported from the bank where they were deposited to the bank paying the check, a slow and expensive process. When the FAA grounded all airplanes in the wake of the 9/11 terrorist attacks, almost $50 billion dollars in checks were left unprocessed for days. That prompted the passage of Check 21 which allows banks to use electronic images of checks rather than paper. Check 21 has been a tremendous success. Almost no payments settled between banks use paper checks anymore. The introduction of remote deposit means that many checks that you mail don’t even make it to the bank, and the ones that do are converted by the bank to electronic files almost immediately.

3 Ways to Eliminate Paper Checks In Your Business

Purchasing Cards

A Purchasing Card (P-Card) is a type of Commercial Card that allows organizations to take advantage of the existing credit card infrastructure to make business-to-business (B2B) electronic payments for a variety of business expenses (goods and services).  P-Cards are issued to employees responsible for making purchases or payments on behalf of their employer. Suppliers accept P-Cards for payment, utilizing the existing credit card infrastructure for payment processing. Transaction data is captured by a supplier’s point-of-sale (POS) system and transmitted through the card network.  Company benefits include:

  • Reduced costs
  • Faster receipt of goods/services than with traditional payment methods
  • Reduced administrative burden allowing more time for value-add tasks
  • Supply base consolidation
  • Re-enforcement of general purchasing best practices
  • Improved spend authorization controls

Electronic Payables

Many banks and software programs offer ways to pay invoices electronically.  Benefits to end-user organizations generally include:

  • Early payment discounts from suppliers
  • Reduced costs associated with check payments
  • Reduced (or eliminated) late payment fees
  • Minimized communications (and time spent) with suppliers due to more timely payments
  • Reduced exposure to fraud

Payroll Cards

With payroll cards, an employee’s wages are loaded onto the card via direct deposit. This gives employees access to their money through an ATM and at virtually every branch of every bank. They can also use the card to pay bills, make purchases, and transfer money. This makes payroll debit cards especially beneficial because employees can use 100 percent of their wages.  Some advantages to employers include:

  • Low-cost availability for any size company in any industry
  • The ability to direct deposit 100 percent of employee wages each pay period
  • Eliminating the liability associated with paper checks
  • Decreasing the number of paper checks created and distributed, which limits exposure to check fraud and identity theft
  • Reducing the use of natural resources by going green—and saving money in the process
  • Increasing employee satisfaction and retention

George Bernard Shaw said “Progress is impossible without change, and those who cannot change their minds cannot change anything.” Should you reevaluate the way you think about paperless payments in your organization?  Paper checks have served us well, but the time has come to leave them in the past.

Comments

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

What's fascinating is that the US is so tied to paper and the resultant labor intensive procedures for accounting for this paper (maker, bank, payee, bank, maker).

However, for many companies the cost of checks is insiginificant versus the costs the banks charge for using ACH and Wires (where there is little or no cost, except the loss of use of your money by the bank).

When we catch up to Europe and eliminate the costly bank fees associated with electronic payments, we'll start being greener... increase productivity and reduce unnecessary overhead burden.

Ernie Humphrey CTP
Title: CEO & COO
Company: Treasury Webinars
LinkedIn Profile
(CEO & COO, Treasury Webinars) |

Wayne,the cost of processing a check (direct and indirect (time) has been estimated to be $1,50 per item and higher, and that is without including the cost of check stock, envelopes, handling and postage. When I was managing treasury many years ago the ACH cost was only about a $1.00 per ACH. I ask others who have more recent experience in treasury to "weigh in", but for a company with any meaningful payables volume, checks are more expensive, I would also note that checks no longer offer much, if any, benefit from the a 'float".

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Thanks Ernie, but for the smaller company (80% of all companies) the cost of wires and ACH are still steep (relative term).

As far as float, I agree and disagree depending on which side of the banking relationship you are on (makers' bank or payee's). paper checks still has transit time, deposit time (not everyone uses scanners to make their deposits... Yet).

Jennifer Eversole
Title: Partner & Knowledge Enthusiast
Company: Management Stack, LLC
LinkedIn Profile
(Partner & Knowledge Enthusiast, Management Stack, LLC) |

I agree that the cost of wires is definitely higher than the paper check. Those should only be used when absolutely necessary. In my experience electronic payments cost anywhere from .025 to .50 cents per transaction, depending on your agreement with the bank and which method you use to send the payments electronically. Once you factor in cost associated with paper checks such as postage, check stock, toner, etc., electronic payments are almost always less expensive.

Ernie Humphrey CTP
Title: CEO & COO
Company: Treasury Webinars
LinkedIn Profile
(CEO & COO, Treasury Webinars) |

Jennifer, I think you may have wanted to say that checks in general are more expensive than an ACH when considering the total cost.

Jennifer Eversole
Title: Partner & Knowledge Enthusiast
Company: Management Stack, LLC
LinkedIn Profile
(Partner & Knowledge Enthusiast, Management Stack, LLC) |

Ernie - Actually, as you pointed out in your earlier comment, the opposite is true. My point was that while wires are definitely one of the most expensive way to send money through the banking system, other electronic payment types (e.g. ACH) are generally less expensive than a paper check.

Ernie Humphrey CTP
Title: CEO & COO
Company: Treasury Webinars
LinkedIn Profile
(CEO & COO, Treasury Webinars) |

Thanks Jennifer, I just wanted to be clear here for those who may not be familiar with electronic payments (ACH vs. FedWire), and may be surprised that remitting a check can cost as much as it does.

Topic Expert
Brenda Goudey
Title: CFO/VP of Finance
Company: KDR Designer Showrooms
(CFO/VP of Finance, KDR Designer Showrooms) |

I agree that ACH transactions are significantly less expensive than wire transfers, but are still significantly more expensive than paper checks at this point, at least for us. As a small business with minimal negotiating power, our cost is approximately $4 per transaction.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Thank you Brenda, my point exactly - the SMB space "can't" afford to stop the paper because the banks are artificially inflating the costs; which isn't very Green of them.

Kill a tree or some poor electrons that re-generate themselves; an easy decision...

Ernie Humphrey CTP
Title: CEO & COO
Company: Treasury Webinars
LinkedIn Profile
(CEO & COO, Treasury Webinars) |

Wow, $4 for an ACH transaction. I am going touch base with a few Treasury contacts and see what other options might be out there other than going through a bank where you have accounts. It is common for banks that are in your bank group (lending you money) to supplement your relationship ROI through inflated bank fees, but if you are not "tied" to use a specific bank for treasury services (including ACH) there may well be viable options to explore, and I will share them if I find any.

Jennifer Eversole
Title: Partner & Knowledge Enthusiast
Company: Management Stack, LLC
LinkedIn Profile
(Partner & Knowledge Enthusiast, Management Stack, LLC) |

I have done some research and found that Chase and Bank of America provide the most competitive pricing for sending ACH payments. BOA has a Direct Payments program where electronic payments are $10 / month for 20 payments and $2 for each additional set of 5 payments. Depending on how many transactions you send, the price can be as low as .50 per payment. I still believe that even at $1 each (if you send 10 payments/month), the cost is less than that of mailing a paper check.

Here is a link to information about BOA's Direct Payments program:

https://www.bankofamerica.com/smallbusiness/online-banking/cash-management/online-payments/fees.go