John Sharman, CEO of Tuxedo, a leading payment technology and prepaid service provider, looks at the reluctance of businesses to move away from cheques, and towards alternative payment processes.
As electronic payment methods continue to evolve, there seems to be a reluctance to change by organisations where cheque payments are ingrained in their culture. Unlike consumers, that are able to embrace new technologies and processes with minimum interruption, companies sometimes avoid additional administration in implementing new processes across their business.
However, as businesses expenses account for a vast amount of corporate expenditure – between 8% and 12%, there are often many long term gains to be had from adopting new technology. Organisations that evaluate existing protocols and look for a more cost-effective and time-efficient means of managing such payments via electronic means become more competitive in the long term.
Despite this, many organisations are still reluctant to shake-off the spectre of the cheque, and embrace the future by opting for alternative payment technology. In 2012, a study of 1,500 UK businesses by The Payments Council found that small businesses are still more likely to make payments by cheque than any other means, while a number of large businesses are still sending out large volumes of cheques rather than choosing electronic methods.
It’s not just UK businesses that are having trouble letting go of paper payments; a study by the Association of Financial Professionals in the U.S. found that half of U.S. businesses still use cheques to pay their bills.
So what are the benefits for organisations looking to make the move to electronic payments?:
- Cost reduction – it sounds obvious, but the more payments organisations can process electronically, the less needs to be spent on paper and postage for cheques. Of all the payment processes, cheques are generally considered to be among the most expensive
- Increased efficiency – implementing a system of electronic payments is not only a great means of cost-saving, but also makes the process more streamlined; reducing the amount of time spent on manual processing
- Positive relations – being able to process payments more quickly and effectively goes a long way to strengthening relations with suppliers
- Play it safe – electronic payments are not only speedy and efficient, they’re safer too. Cheque fraud is still the most popular form of payment fraud around, despite the widespread switch to electronic methods
- Certainty of cash flow – once funds have been transferred onto a prepaid card they are no longer available as part of short term cash flow. Cheques don’t give this certainty as cash flow is only impacted once they are presented for payment, which could be at any time.
Even if an organisation has weighed up the benefits associated with electronic payments and decided to make the switch, there are still a number of important factors to consider before doing so. To begin with, it is recommended to carry out a full evaluation of current payment processes, along with the needs of suppliers and payees, while also assessing the availability of internal resources to implement the system.
However there are other elements that must be considered:
- Which is best – consider which payment methods are most suitable for the organisation’s needs. What’s right for one business won’t necessarily suit another, and it’s also necessary to consider which method will work best for suppliers
- Make it clear – one of the biggest hurdles can be objection from suppliers who are unfamiliar with electronic payments. This can be avoided provided that the company is able to clearly articulate the benefits to suppliers, including cost-saving, efficiency and faster payments
- External insight – an independent viewpoint on the new procedures can be useful not only before embarking on the process, but during and after as well. From analysing current methods and spend, to making a case for the switch from cheques and providing ongoing support after the switch, sometimes it pays to have a third party who can assist in the development and implementation of electronic payment procedures
There can be no doubt that switching to electronic payments can help relieve payment pains for many organisations; so while it may seem daunting at first, ultimately every business can benefit, and with the correct planning in place there’s no reason for a headache when it comes to waving paper payments goodbye.
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The Payments Council: payments made and received by UK businesses http://www.paymentscouncil.org.uk/media_centre/press_releases/-/page/2366/
 Total Payments.org: U.S. businesses don’t want to check-out the cheque http://bit.ly/1ocU84k