Given that the B2B payments industry is valued at around $127 trillion, you’d be surprised to learn that the industry continues to use outdated payment solutions – like checks.
However, some business owners may not know that check payments have several hidden costs associated with them. There is also an inherent lack of security and efficiency that comes with using checks.
With this in mind, in this article, we’ll walk through some of the common hidden costs of checks and take a closer look at how check payments impact your business’ bottom line. We’ll also explain how you can effectively reduce costs by opting for a more secure business payment system.
3 hidden costs of checks
Despite the fact that sending a check can cost you around $20 per payment (and take around five business days to clear), paper checks are still the most common way for businesses to pay other businesses. And there are a few reasons why:
- Familiarity. Checks have long been a part of the B2B payments ecosystem for most businesses.
- Control. Business owners derive a false sense of control over their cash flow from personally seeing and signing every check.
- Universal acceptance. Check payments are universally accepted, which make checks a reliable payment option that’s easy to issue and keep track of.
In addition to the outrageously high transaction fees, here are some of the hidden costs of checks that often go unnoticed:
- Labor costs. Labor costs – which include administration and accounting – are perhaps the largest expense businesses incur from managing B2B payment operations in-house. Everything from handling check approvals to payment exceptions, is a manual process that requires a significant time investment.
- Fees and distribution costs. Paper checks need to be distributed to vendors and suppliers, which means you’ll need to pay for mailing supplies. Additionally, you can also expect to incur all sorts of fees – such as processing fees – to get your payment through.
- Check fraud costs. Check fraud is the most common type of payment fraud, particularly in the B2B marketplace. In fact, according to the 2018 AFP Payments Fraud Survey, 74 percent of respondents reported experiencing check fraud.
It’s easy to see that check payments cost you more than just transaction fees, which in itself is considerably high, and, all these fees will undoubtedly affect your bottom line.
How check payments impact your bottom line
Businesses end up spending too much time with AR/AP management activities that involve manually handling check payments and approvals. Needless to say, this is painfully slow, prone to error, and keeps you from scaling your business. Additionally, failing to digitize your B2B payments system can expose you to fraud.
However, many banks continue to use systems implemented in the 1970s and have yet to build tools that (1) integrate with their existing systems and (2) help businesses streamline B2B payments. That said, the current state of check payments remains the same and undoubtedly impacts your business’ bottom line in more ways than one.
How to reduce check fees and costs
The easiest way to streamline B2B payments, thereby effectively reducing check fees and costs – is by switching over to an electronic business payment solution. Banks are slow to innovate in this area, but Financial Technology companies are recognizing a need for small business payment products.
Here’s how a business payment product can help you grow your bottom line:
- Improve business payment management by letting you manage AR/AP activities from a single, centralized platform.
- Reduce costs by eliminating the need to pay for paper checks, mailing supplies, postage, and processing fees.
- Speed up payment processing times by replacing slow paper check payments with online payments.
- Track payments and increase visibility into payables and receivables.
- Customize payment approvals to avoid any unnecessary delays.
Secure and affordable business payments for SMBs
Ablii is a business payments solution for SMBs that enables companies to move money in a traceable, reconcilable, and affordable way.
Sending payments via paper check is a fairly long process and can cost you up to $20. Ablii makes it easy for businesses to issue payments by simplifying it down to a four-step process: select a contact, enter the payment details, approve the payment, and click the Submit button. Not to mention, you only pay $0.75 per domestic transaction and $5 for a cross-border payment
With check payments, your accounting department has to manually keep track of payment statuses and reconcile check payments, which are inherently prone to human error. Ablii automatically imports invoices from your integrated accounting software and uses data encryption and bank-grade security controls to make sure all payments (and payment information) that go through the platform are secure from fraud.
Paper check payments are rife with hidden costs and inefficiencies. One way to save money, automate accounting operations, and improve vendor relationships is by switching over to an online B2B payment solutions, like Ablii.
Do you agree that outdated payment systems – like paper checks – are preventing your business from growing? Let us know in the comments section below.