We might all be tired of talking about check payments, but I heard a real-life story recently that made me realize the topic calls for more scrutiny. Besides, as long as checks continue to occupy more than a sliver of the payments pie in the United States, we cannot pretend they have been phased out like rotary telephones.
First, there are the obvious drawbacks. We know that checks continue to be a top fraud target; for evidence, look no further than the 2022 AFP Payments Fraud and Control Report. Then there is the cost aspect. Needless to say, the hard-dollar costs keep rising, and the process costs for both making and receiving check payments push the overall cost even higher. This is where the real-life example comes into play, demonstrating that the time and resources associated with checks goes well beyond the payment transaction. Keep reading to see what happens at one particular organization, followed by what you should review for your own organization.
Real-life Example
A friend who works in the insurance industry told me about the check process at her company from an accounts receivable (AR) consumer-to-business (C2B) perspective. Customers of all ages still regularly hand checks in person to their sales reps. When all is said and done, each of those checks pass through six different departments to be handled. Imagine the security protocols this requires. Plus, they have to make various accounting entries along the way before ultimately shredding a check. Why doesn’t anyone (besides my friend) question such an inefficient process?
Let’s say they receive 250 checks per week. Even if each department only handles a check for one minute each, this would be six minutes per check. Six minutes times 250 checks is 1500 minutes, equating to 25 hours per week.
Lesson: Expending energy on checks is a waste of time, taking attention away from more valuable activities.
What About Your Organization?
Take a look at the complete check costs at your organization, whether AR or accounts payable (AP). For AP, evaluate the following.
Number of checks issued per year and the associated hard-dollar costs (check stock, printing costs, envelopes, postage)
Labor costs to execute a check, starting with requesting a check (or invoice processing for a check) through the final step of mailing; this might include time spent by one or more executives to sign checks
Any bank fees for check-related services
Other internal costs, such as:
Maintaining policies and procedures for checks
Monitoring and replenishing check-related supplies
Dealing with exceptions
Managing unclaimed property for uncashed checks
Fielding inquiries about the status of checks
Reissuing lost checks
Establishing controls for the prevention and detection of check fraud (and, as applicable, responding to actual fraud)
Conducting audits to ensure the controls are effective and being consistently followed
While many organizations have successfully reduced checks to less than 20% of their payments (and some are notably lower), others still hover around 50% or even higher.
If your organization knew its true cost of checks, they should be motivated to make check reduction a priority. You can be part of this change and even take the lead. Compile the data, based on the bullet points noted herein, and propose better payment alternatives. Don’t forget to include what AP could be doing if checks were reduced.
Access related content about creating a payment strategy.
Final Thoughts
Recharged Education plans to stop accepting checks in 2024. With increasing delays in mail service and the concern about fraud, I much prefer ACH, card, and even Zelle payments.
And, about those rotary phones… Yes, I know that they can still be purchased. However, I am not aware of anyone willing to give up their mobile device to rely on one.
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About the Author
Blog post author Lynn Larson, CPCP, launched Recharged Education in 2014. With more than 20 years of commercial card experience, her mission is to make industry education readily accessible to all. Learn more…