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Is this the end of checks?

Because of technology, many aspects of an operation can seamlessly shift to this new reality while some present a new challenge – like checks.

Despite the drawbacks of this process, 50% of companies use paper checks as their main form of payment for transactions including reimbursing suppliers, obtaining materials and receiving fees.
Despite the drawbacks of this process, 50% of companies use paper checks as their main form of payment for transactions including reimbursing suppliers, obtaining materials and receiving fees.

Since mass COVID-19 quarantines began across the globe, most non-essential businesses are operating remotely with entire teams in their homes while office buildings remain empty for extended periods. Because of technology, many aspects of an operation can seamlessly shift to this new reality while some present a new challenge – like checks. Despite the drawbacks of this process, 50% of companies use paper checks as their main form of payment for transactions including reimbursing suppliers, obtaining materials and receiving fees. Because numerous physical locations are shut, not to mention reduced banking and mail services, this can cause a major cash flow issue for these organizations.

The impact on cash flow

Even before this pandemic, checks were not the optimal process for money management. Not only does their use delay receipt, but it is also costly as each document requires manual processing and delivery. However, these expenses are small when compared to the overall effect that this method has on cash flow. Outgoing paper checks can make up one quarter of a company’s overall expenditures, which means they must leave a large amount of liquid funds in their accounts to avoid overdraft. This ties up capital that could be better used for things like business development, and makes budgeting more difficult.

At the moment, those that rely on paper checks for both incoming and outgoing payments are facing a challenge and could see several aspects of their operation stalled due to lack of funds or delayed payment.

Will COVID-19 force change?

Once the pandemic ends, it remains unclear as to whether the public will embrace checks the same way it did before the crisis. Preference is already swaying towards digital payments that avoid person-to-person interaction and potential germs.

Additionally, the widespread delay may force more official change like it did after 9/11 when international paper deposits deliveries were held for several days due to grounded flights, increasing the amount in transit from $6 billion to nearly eight times as much. This led to a new regulation, the Check 21 Act, allowing for electronic images of a check in place of only paper.

Though the enactment of Check 21 allowed for easier and less costly processing, it didn’t necessarily become faster. Because of the potential for fraud, a $2 billion per year problem, wait times can be long for these types of electronic checks. With the ongoing COVID-19 crisis, fraud is expected to rise.

Why businesses resist change

Regardless of these changes and new technology, the older method of mailed paper checks still remains widespread. As many as 50% of large US businesses and 97% of small businesses maintain this practice. For many, it may simply be easier as any change requires effort on the part of both the sender and receiver of payments. Still, because COVID-19 has no firm end date, companies may be forced to adjust. Luckily there are a variety of solutions – wires, ACH, bank transfers – that can serve as alternatives. It’s too early in the pandemic to definitively predict the demise of paper checks, but businesses who rely solely on the payment method should consider an alternative to manage finances in the meantime.