Making the Switch: Moving from Checks to Digital Payments

  • By AFP Staff
  • Published: 5/17/2024
Checks to Digital Payments Header

One of the silver linings of the COVID-19 pandemic was that it accelerated businesses’ transition to digital operations — including payments. Yet checks still make up a sizable portion of businesses’ payment outflows and inflows. A surprising 92% of organizations continue to use checks, according to the 2022 AFP Digital Payments Survey.

Checks are often preferred because some vendors, spooked by the associated fees, refuse to accept other payment types. Many businesses are used to checks and are reluctant to revamp their current processes to accommodate digital payments. Checks are low-tech, simple, easily traceable and reconcilable, and they include all of the needed remittance information.

But businesses must ditch the paper and digitize. Digital payments are far more efficient, less costly and less vulnerable to fraud. Checks simply come up short in comparison.

Inefficient Processes

AFP’s 2022 Digital Payments Survey found that 73% of organizations are moving their B2B (business-to-business) payments from paper checks to electronic payments, and 92% of them cite increased efficiency as the primary reason.

Processing checks involves printing and reviewing the checks, obtaining approvals and signatures, stuffing envelopes and mailing. Approvals alone take an average of 14 business days, according to PYMNTS research. Clearing checks through the banking system takes one to two more business days, and then they must move through the postal system. SnailWorks, a company that tracks commercial mail, found that deliveries take four to five days, according to The New York Times.

High Costs

Checks are not only slow, but also expensive. The 2022 AFP Payments Cost Benchmarking Survey determined that the median cost of issuing a paper check ranges from $2.01 to $4.00. By contrast, ACH (automated clearing house) payments, a common replacement for checks, typically cost about $0.40. In the same survey, 85% of respondents said lower costs were another major reason they were moving to electronic payments processing.

Beyond higher per-transaction costs, lengthy check processing cycles often cause businesses to miss out on early payment discounts. Add this to the productivity and staffing costs associated with cumbersome paper processes, and checks are clearly not cost-effective.

Fraud Vulnerability

The third most-cited reason for adopting digital payments is fraud prevention, mentioned by 67% of respondents to the Payments Costs Survey. Of all payment methods, checks are the most vulnerable to fraud — a trend that has remained consistent for many years. The 2024 AFP Payments Fraud and Control Survey Report states that 65% of organizations have experienced check fraud, but only 33% experienced ACH debit fraud. Fraudsters use tried and true methods like check “washing” — in which the payee’s name is replaced — to perpetrate fraud with startling success.

Digital Payments: Alternatives to Paper Checks

A few of the types of digital payments that can provide digital alternatives to checks include ACH/eChecks, cards and real-time payments. All of them are faster, cheaper and more secure than checks.

  • ACH payments, also sometimes referred to as eChecks, are electronic checks that can pull funds directly from a checking account using the information from the bottom of a check, known as the MICR line. ACH transactions are processed in batches over one to three days. Same-day ACH payments are also available for a slightly higher cost. ACH has been in use for many years and has a median per-transaction cost ranging from $0.26 to $0.50, the Payments Cost Survey found. They are typically quite safe, using data encryption and secure third-party servers to transmit and store data.
  • Credit and debit cards are a familiar payment type, so some vendors accept them more readily than other methods. Card payments are processed almost instantly, but they are more expensive than ACH payments, with a median cost of $1.50, per the Payments Cost Survey. They are generally secure, thanks to protections offered by the major issuers and SSL (secure sockets layer) encryption capabilities. Research has shown that accepting card payments has improved most businesses’ cash flow, and many have found that it reduced their cost of doing business.
  • Real-time payments are instant payments enabled by the Real-Time Payments (RTP) network or the Federal Reserve’s FedNow service. Introduced in 2017, real-time payments are rising in popularity due to their speed, as transactions are transferred within milli-seconds from account to account. These payments are not cheap, with costs ranging from $0.01 to $2.00, but they still cost less than checks.

While they do include fees, these payment methods outshine paper checks in every performance category. Even better, they make sending and receiving payments easier, improve cash flow and optimize working capital. For the long-term health of a business, payments must be digitized.

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