Paper checks may seem an outdated way to pay for products and services, but plenty of organizations still use them as their primary mode of payment. As per the Electronic payments survey report, 42% of organizations made payments to business customers using checks. Due to this, AR teams at small and mid-sized businesses are stuck in paper-check processing, expensive bank lockbox services, and a highly manual cash reconciliation process. To overcome these problems mid-sized businesses are now moving towards digital payment services to modernize their payment cycle.
Digital payment methods help reduce payment fraud risk and the higher costs associated with manual paper-check processing. They also make the payment cycle faster and more efficient.
In this blog, we will discuss how paper-checks pose serious challenges to your business in the long run. We also suggest smart ways to overcome them.
Most checks take approximately two to three days to clear. The time delay between when a paper-check is written and when it is reflected in the bank database is often an issue. Several other factors also cause delays in processing checks. Some of them include:
The lengthy payment cycle and manual processing of checks lead to an increase in days sales outstanding(DSO) which affects the overall cash flow.
As per Bank Of America, the costs of processing a single business check range from $4 to $20 which adds to huge sums in the long run. Banks also charge you fees for lockbox services.
If an organization opts for a bank key-in service for capturing remittances, the organization has to pay additional fees, depending on the number of characters. Also, data captured by the bank has limited information. For a key-in fee, the bank charges 1-3 cents per character. This can add up to $50,000+ per annum for high-volume lockbox accounts. Furthermore, maintenance costs range from $400-$700 per month per lockbox.
Tracking the exact timestamp when a paper-check is processed, cashed, and updated in the database is a time and effort-intensive process. Also, lost or bounced checks result in late payments and affect the relationship with customers. Paper checks also lead to high overhead costs, errors related to payment details, potential customer risk, and limited visibility into payment statuses. Further, your AR team may not be able to focus on dispute handling due to a blurred picture of cash flows.
The handling and extracting of the data from paper checks is a tedious process that involves matching individual check payments with their respective invoices. The bank key-in process is manual, time-intensive, and error-prone. This process becomes more complicated when you have to gather remittance information from different sources such as emails and web portals. Analysts have to then manually log in to all the web portals and email portals to download the remittance details. There is always a high possibility that the recorded details may be incorrect. Any mismatch in remittance data can lead to cash flow problems and an increase in your DSO.
Another challenge for your AR team is the identification of disputes or deductions in payments. Analysts have to manually calculate and create line items for every short payment. They need to manually send emails and messages and make calls to customers regarding disputes. This further increases the time needed to close invoices. All these factors lead to the delayed resolution of disputes, hindering the customer experience.
Reports by the American Bankers Association suggest that 60% of frauds are check-related frauds. The leading check frauds are counterfeit checks and forged signatures. With limited authorization control on each paper-check, the risk of fraud is very high. If a customer sends a check by post, there is always a probability that it can get damaged or lost during processing and delivery.
Digital payments have gained huge popularity among mid-sized businesses. As per PYMNTS.com, roughly 92% of mid-sized businesses are digitizing at least some aspects of their accounts receivable process. Digital payment methods help streamline payment processing and address AR pain points. They also offer added benefits such as real-time payment, better visibility, compliance, fraud protection, and improved cash flow.
The different digital payments formats include:
These modes of payment save customers a lot of time and cost. E-invoicing portals also have attractive interfaces and help eliminate the effort to go to the bank for physically depositing checks.
A self-service portal can empower customers to access and manage their invoices and account statements, raise disputes, and make payments. Providing customers an easy platform to make payments leads to reduced dependency on your team and improved customer satisfaction rates.
Remote Deposit Capture (RDC) is a service that helps users scan checks and transmit the images and ACH data to the bank for posting and clearing. However, RDC still requires human intervention to operate and scan the checks and remittances separately.
An integrated RDC with cash application provides end-to-end automation. It integrates RDC directly with cash applications.
Furthermore, integrated RDC eliminates the need for expensive lock-box services and manual reconciliation of payments and remittances, resulting in huge savings.
B2B businesses are increasingly adopting digital payment methods As per NACHA 2019 report, the number of payments made by checks is down to 42% as compared to 51% in 2016. Within the next few years, one can expect a major chunk of B2B payments to be made via digital methods and cryptocurrencies. Digital payment formats help mid-sized businesses process faster payments and offer superior customer experiences.
Furthermore, automated RDC eliminates manual efforts and captures details more accurately, thus decreasing the chances of errors. Understanding the world of digitalization and determining the cost-benefits of the different payment formats is important before you make decisions around investing in e-invoicing and payment solutions.
Want to know more about how digital payments help mid-sized businesses in the B2B world? Check out this blog: “Redefining Accounts Receivables with Digital Payments”
The HighRadius RadiusOne AR Suite is a complete accounts receivable’s solution designed for mid-sized businesses to put their order-to-cash on auto-pilot with AI-powered solutions. It leverages automation to fast-track key accounts receivable functions including eInvoicing & Collections, Cash Reconciliation, and Credit Risk Management powered by RadiusOne AR Apps to improve productivity, maximize working capital, and enable faster cash conversion. Affordable, quick to deploy, and functionality-rich: it is pre-loaded with industry-specific best-practices and ready-to-plug with popular ERPs such as NetSuite and Sage Intacct. The HighRadius RadiusOne AR Suite is designed to automate labor-intensive processes while streamlining credit and collections activities for faster AR processing, better cash flow and improved profitability.
Lightning-fast Remote Deployment | Minimal IT Dependency Prepackaged Modules with Industry-Specific Best Practices.