It's OK Entrepreneurs Still Pay by Check but They Need to Stop Mailing Them
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I work for a company whose founder invented the first personal, flat-pocket checkbook and the convenient holder used to carry it around. Our logo is still the one most frequently found in the corner of that once-ubiquitous piece of rectangular paper. So it might come as some surprise that, this National Small Business Week, I’m making a case for why entrepreneurs should stop mailing checks.
Why do small businesses still use checks?
Small Business Week does a remarkable job of spotlighting the importance of small businesses, but it’s easy to overlook the routine aspects of being an entrepreneur. For many small business owners, checks remain the preferred method of payment. Even in our rapidly evolving digital economy, the latest data from the Association for Financial Professionals (AFP) shows that B2B payments by check increased between 2013 and 2016.
There are many reasons small businesses owners opt for checks. Payable and receivable systems are built around checks. Switching to different systems means difficult re-engineering of workflows and expensive replacement of accounting systems. Checks are widely accepted, and the payer doesn’t need to know payees’ sensitive banking details to send payment.
Of course, savvy entrepreneurs constantly seek new solutions. They don’t adhere to old ways just because a method is comfortable, or it’s “how things have always been done.” Conversely, they don’t want to invest in every shiny new object. They look for an “evolutionary” innovation that fine-tunes and enhances a system that has worked well for their business. They are skeptical of what is claimed to be “revolutionary” but requires abandoning what works to start from scratch.
The risk of fraud.
To protect themselves against fraud, entrepreneurs seek secure payment options that don’t require sensitive information from the payee, have limited touchpoints and offer multiple layers of control. Some, but not all, digital payments require the payee to share bank data, which increases the risk of fraud.
According to a 2018 survey conducted by AFP, fraud attacks against payment systems persist. Vulnerability to fraud increases with the number of times a payment is touched. A mailed check can be touched by as many as eight people during its lifecycle.
It’s called “snail mail” for a reason.
Mailing paper checks can also be painfully slow. Worse yet, checks can be lost or compromised in transit, placing entrepreneurs’ account information in the wrong hands.
There are also cash flow ramifications: while a small business’ check is in the mail, funds are stuck in transit for two days, on average. This can be paralyzing for entrepreneurs who need to make payments on the spot, many of whom resort to hiring expensive couriers or paying expediting fees.
Speaking of fees: How much would you estimate sending a single check costs? The cost of a stamp, right? In reality, the cost of issuing a paper check can range from $4 to $20, when you account for the price of the check, plus shipping and the time employees spend writing, mailing, collecting and reconciling the check. One estimate suggests businesses spend $235 on postage to mail 500 checks.
The best of both worlds.
Small Business Week is a perfect time for entrepreneurs to reflect on their business and identify tools that make their operations more efficient. But when it comes to payments, many feel stuck between a rock and a hard place, wanting to retain the benefits of checks but feeling bogged down with the aforementioned disadvantages that come with mailing them. One solution that blends the two worlds is the echeck, which is not EFT, ACH or Online Bill Pay. Instead, an echeck is everything a paper checks is, but it’s delivered in seconds by email.
Payers send email notifications to payees (one at a time or in batches, depending on payer’s preference). Payees click on a secure link in the email to access, download and print checks, along with related remittance information. Payees deposit the printed checks at their financial institutions like any other check.
In other words: it marries the benefits of checks, without any need to upend payment systems and processes, while eliminating the downsides of mailing them. Entrepreneurs can time disbursements to the last possible second, giving unprecedented control over cash flow. Digital delivery ensures improved security and eliminates checks getting lost in the mail. Sending payments and remittance together reduces reconciliation headaches.
And what entrepreneur doesn’t want to reduce headaches?