The Check Challenge: 4 Paper Payment Problems (And How to Fix Them)

George Green
Learn how to replace check payments in accounts receivable

It's time to recognize — and respond to — the paper payment problem. Customers expect new, digital experiences and checks offer the opposite.

A recent PYMNTS and American Express report found that 67% of B2B buyers switched vendors to enjoy a “more consumer-like” experience. For millennial buyers, this number reached 74%.

We’re all rather fussy nowadays. And it’s not just because we’ve become accustomed to an Amazon-style shopping experience. Industries that evaded innovation until relatively recently — like banking — are now facing the need to overhaul services as challenger banks secure new customers in their droves.

payment options

There’s no evading innovation.

 

Across all sectors, there is a clear mandate to modernize. Yet in accounts receivable, a legacy process prevails. Research shows that 25% of B2B transactions are still made via paper checks. Reasons for this are varied. Some organizations simply don’t want to move away from traditional practices and others find check payments hard to replace as their AR processes are designed around them.

But it’s time to recognize — and respond to — the paper payment problem. Customers expect new, digital experiences and checks offer the opposite. Let’s examine four significant challenges caused by checks and the benefits teams can expect to realize once they stop using them.

Slow and Spenny Loses The Race

Did you know that a single check costs US$4 to US$20 to process and businesses in the US spend almost $160 billion annually to send and receive paper invoices and payments? Checks are costly and every cent spent on them is money that’s being taken out of your business.

They’re also slow. Mailing checks can cause a lot of issues: they clear 5-10 business days from when they are sent out, they can get lost, and hold-ups are common. When we consider that 15% of B2B payments are delayed, it’s hard to believe that companies continue to use a mode of payment that’s so demonstrably unreliable.

check payment

Still using check payments? Don’t expect to receive your money in a hurry.

An automated accounts receivable platform addresses both of these issues, offering a range of payment options from ACH to credit cards. It also ensures that companies can make transactions online, providing that “consumer-like” experience. With automation, customers can take advantage of self-service capabilities that allow them to access account details and make payments immediately via a channel of their choice, at any time. This means your business can retire physical checks and enjoy faster cash flow as a result.

The Challenge of Cashing Checks

During the pandemic, the check may have been in the mail, but businesses found it difficult to deposit the cash with no one at the office to open the envelope. Many firms resorted to banks’ lockbox services as an important step toward digitizing data in check transactions.

However, this came with problems. When check payments are made, payers include an array of information and lockbox providers relay that information in different ways. Customer data can be digitized via lockbox services, but there’s no obvious way to connect the information with an outstanding invoice, particularly if there’s a discrepancy in the payment amount. This means AR professionals have to manually work through the details which wastes valuable time.

Finance made easy

Finance made easy: AR platforms automatically apply payments to the correct invoice.

AR platforms that use customer portals eliminate this challenge. When a payment is made through them, machine learning capabilities identify and extract remittance advice from inbound communications and match these to payments. In YayPay’s case, where the platform has a connector to a customer’s ERP, the cash application information is pushed through to the correct invoice.

Failures in Financial Forecasting

A critical capability that ensures a business’ health is accurate financial and payment projections. In an Accenture survey, 99% of CFOs and finance leaders said that operating with real-time data is essential to navigating disruptions. And 68% believe that real-time financial modeling is critical to better decision-making.

Not only do checks limit visibility to payment statuses. Teams are also forced to sift through incoming information in order to collate and analyze it for financial forecasting. Without an automated receivables solution, it’s nearly impossible to easily filter the data. That can leave your team feeling ill-prepared to handle business disruptions.

A Clunky Customer Experience

People are accustomed to real-time payments. If your process lacks this capability, it may stand out in the wrong way. Your customers are busy in their own world and any time spent not driving revenue is time that’s costing them money.

Offering additional payment options is an essential step for all organizations. It has the benefit of decreasing friction and increasing convenience. This means you’re easier to do business with and your customers will thank you for that with better payment behavior.

The good news is that there are various ways of making payments that don’t depend on sending a check through the mail. Here are some alternatives you might like to consider:

ACH

This is a network used for moving money electronically between bank accounts. It is fast and cost-effective and often the way employees' salaries are paid.

E-check

An e-check is a digital version of a physical check. A clearing house sends money from one bank account to another with this method. Electronic check processing works similarly to the paper kind, only faster. Authorization can be given by an online form, signed form or over the phone.

Virtual Credit Cards

A single-use credit card number generated during a transaction. Because there is no physical card associated with it, it cannot be used for in-person transactions, and vendors will process the card number without seeing it.

Wire Transfer

Often used for international payments, this is a transfer of funds done electronically across a network of banks or transfer agencies. Senders provide the recipient’s name, bank account number and the amount transferred and pay for the transaction at the remitting bank.

 

The Future is Fast, Flexible and Frictionless 

The shift toward quick, contactless transactions is shaping the future of accounts receivable. And the ability to make and accept payments through an intelligent platform is essential — for your cash flow and your customers’ experiences.

 

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