How to Prepare Your Accounts Receivable for the Death of the Check

With our experiences as consumers steadily influencing our expectations as B2B buyers, it’s no surprise that businesses are moving away from checks in favor of digital payments. Can you even remember the last time you wrote a personal check?

According to the Association for Financial Professionals, 36% of all B2B payments received by businesses in 2019 were made via check. This is down more than half from the 75% reported in 2004. 71% of major suppliers also reported that they would look to convert most of their B2B payments from checks to electronic payments within three years.

COVID-19 has been the final nail in the coffin for checks, with paper processes ill-suited for remote working and cash flow now an even more critical priority for businesses. According to a recent report by PYMNTS.com, 83% of businesses were found to have changed their AR processes since the pandemic began, with 83.1% of tech savvy firms receiving more electronic payments than they did before COVID-19.

The declining use of checks has been a trend since long before anyone heard the terms “new normal” or “social distancing” though. In this blog, we’ll examine why that is, and what eliminating checks means for your accounts receivable processes.

What’s Wrong With Checks? 

Where do we start? Checks aren’t the most cost-effective method of collecting payment. Processing a single check can cost businesses between $4–20 on average, according to Bank of America. When you consider the bank fees associated with processing checks, this number gets even higher.

Reducing costs is one of the top drivers motivating businesses to move away from checks, in addition to: 

  • Reducing errors 
  • Reducing fraud 
  • Reducing employee resources and time 
  • Improving cash management  
  • Making AP and AR functions more efficient 

One of the greatest drawbacks to checks—especially in our current economic climate—is how they impede cash flow. Checks can take days to arrive and leave finance teams uncertain as to when payments will be settled. Some of your customers may actually use this flaw to delay payment as long as possible.

Predictability is an important element of cash management now more than ever, so it’s in your best interest to get your customers paying digitally.

The Alternatives Replacing Checks

Checks have all but evaporated from consumer payments, with debit and credit cards taking their place. 

The more traditional electronic payment methods like ACH are used most frequently by businesses—with businesses reporting that ACH credits make up 37% of their overall payments—although these come with their own set of challenges. 

Here’s a brief overview of the alternatives to checks within B2B payments: 

1. ACH 

The pros—ACH payments are more secure than checks, less manual to process, and enable faster settlement times, with most settling within 24 to 48 hours. Many banks have even begun to offer same-day settlements for ACH. 

The cons—The biggest drawback to ACH is the headache these kinds of payments create for cash application, given that remittance information is not captured with its corresponding payment. 

2. Payment Cards 

The pros—With credit and debit, payments get processed instantly, which helps with DSO reduction. Card payments are the most secure form of payment and their instantaneous processing also eliminates any chance of non-sufficient funds on payees’ end. Card payments also bypass the need for manual cash application, given that remittance data always travels with its appropriate payment.

The cons—The downside to card payments is that suppliers must weigh the tradeoff between faster cash and higher costs, due to processing and interchange fees. Processing these payments also requires that businesses invest in the right tech to facilitate and account for them.

3. Payment Networks  

Payment networks are an emerging form of digital payments that connect businesses—through partnering with banks or in some cases bypassing banks in favor of peer-to-peer connectivity—in order to streamline payments. 

The pros—Because payment networks facilitate payments in real-time, you don’t have to worry about reconciling payments with remittance information because these are recorded together automatically.

The cons—Although innovative, the technology behind payer networks is still evolving. The relative newness of these networks also means their application may be limited in some cases to domestic payments only. The ability to process payments in real-time also means incurring higher costs than some other options.  

Why Some Businesses Still Use Checks 

With so many alternatives available, it’s a wonder why any business continues to accept checks.

In many cases customers are interested in paying electronically, but simply haven’t been given the option to easily make payments online. 

The greatest apprehension businesses tend to have towards getting away from checks is dealing with the back-office headaches of matching ACH payments with remittance information and/or the presumed high cost of accepting credit cards. There are easy ways to mitigate both of those challenges: use automation to resolve cash application issues and start to use credit card acceptance as a strategic weapon.

Solving the Back-End Challenges of Receiving Electronic Payments 

There are tools that can manage the re-association of electronic payments with remittance information automatically, even syncing directly with your ERP. Of course, this still requires putting forward some time and investment into making this a straight-through process.

To bypass the problem of matching payment with remittance data completely, have your customers pay you via an online portal. With payments made through a self-serve portal, remittance data is captured at the time of payment and never loses that association.

The Customer-Centric Approach to AR 

When it comes to automating accounts receivable, many businesses take a supplier-centric approach in which they focus solely on their own back-office processes. The issue with this approach is that the workload itself doesn’t shrink—teams simply become more efficient at managing it.

Adopting a customer-centric approach to AR means minimizing the workload where it arises in the first place—customer support, requests and queries. Putting customers in the driver’s seat of their account via a self-service portal minimizes the amount of support required from you, meaning your team is freed up to tackle high-value activities.

Your customers want to pay you the way they pay everything else these days—online. Moving away from checks and giving customers flexible and convenient methods to pay means you get paid faster—which helps improve DSO and accelerate cash conversion as a result. 

Nicole Bennett

Nicole is a Content Writer at Versapay and a recent English grad from the University of Waterloo. She is passionate about generating value for customers and businesses through authentic and compelling storytelling. Before joining Versapay, she completed several internships in SaaS, financial services, and higher ed.