Do Businesses Still Use Checks?

Do Businesses Still Use Checks?

Digital payment methods have increased exponentially since the pandemic. While already on the rise, many people who were reluctant to shift from more traditional payment methods, such as cash and checks, took a chance on going digital to handle their payment transactions. For companies to seamlessly have a check process looking into a company like SmartPayables may be beneficial.

Widespread use of cash decreased, in general, instigated by worldwide lockdowns and isolation, which made it more difficult to make use of traditional brick-and-mortar services. However, the internet was open for business, encouraging more and more people to swap to online payment methods.

Checks, on the other hand, were already going out of vogue, especially among younger generations who are likely not sure how to use them and almost certainly do not possess a checkbook.

As consumers have learned that digital payment options processed way faster, were easier to manage/track, and were susceptible to less fraudulent activity, checks have become virtually a thing of the past, only used in approximately 2% of all transactions.

However, businesses are a different animal entirely.

Do they still use checks?

Do Businesses Still Use Checks?

Checks are quite expensive to cut, often costing between 5 dollars and 20 dollars for a single one! This in itself seems at odds with the business culture of watching overhead and increasing profits.

Furthermore, these checks often travel through the mail, offering plenty of opportunities for them to get lost, which not only means that the business may have to cut replacements, adding more cost, but the lost ones could end up in the hands of other ne’er do wells, compromising security. After all, the business account information is on the checks themselves, and that is sensitive data.

Fraud is a real threat, and with the advances in technology, it is easier than ever to create counterfeit checks that are identical to the real thing, making it difficult to determine whether a check is real or not without intense scrutiny or perhaps contacting the bank in question for verification.
The “floating” aspect of checks, which refers to the extended period of time in which the check is either waiting to be delivered, waiting to be cashed or waiting to be deposited is also a prime attribute that allows would-be thieves to steal money.

It is also well-documented that the entire payroll check procedure is time-consuming and subject to human error, as well. That results in additional costs as employees have to spend time organizing, preparing, and verifying information on the checks themselves is accurate.

Despite this and many other difficulties that result from the use of checks – the answer is: yes, businesses use checks. In fact, one-third of business payments to consumers are done through checks, and a staggering two-thirds of business-to-business payments are via checks.

With all the benefits of using digital transactions and the drawbacks of checks, why do they continue to do so?

Why Do Businesses Still Use Checks?

Businesses are not oblivious – they understand that there are many benefits to converting to digital payment methods. The greatest obstacle isn’t a lack of desire, it’s more akin to an unwillingness to attempt change.

They often have been using this same process for a very long time. Change is frightening and can have serious consequences if the transition is not performed smoothly and accurately.

Furthermore, making a transition of that magnitude is often akin to a large boat turning in the water: you can spin the wheel quickly, but the boat takes a lot of time to actually perform the turn.

Despite this, there are a few benefits to using checks, for better or worse.

First of all, there’s the comfort zone that comes along with the routine. Because they have done the same process for so long, businesses are familiar with what to do, how it works, and how to troubleshoot any problems.

Unlike many forms of payment, such as credit cards, there’s not generally a transaction fee involved in the cashing of a check.

Also, there is another reason – a concept called “breakage.”

When money requires an action on the part of the consumer to access, such as cashing the check or using a gift card, there’s always the chance that the recipient will lose the tangible item, forget to cash/activate it, or lose it.

If that happens, the business generally gets to simply pocket that money as profit. After all, they kept their part of the deal and offered the check, gift card, or other item and can’t be held responsible for the consumer’s failure to make proper use of it or keep track of it.
Obviously, with paychecks or other significant situations, the business is obligated to replace lost checks (adding to the aforementioned costs of printing), but in many cases, they get to walk away with the funds.

Furthermore, to stack the odds in their favor, businesses often include parameters for the use of the check or gift card. This may take the form of an expiration date for the cashing or spending of the money in question, or other parameters such as limitations as to how money can be used, or where it can be used.

However, the increase in digital forms of payment and concepts like direct deposit are reducing the opportunities for businesses to garner advantage from breakage.

The Bottom Line

Everyone is aware that checks are no longer the most efficient way to do business in the digital age. Businesses still make extensive use of checks, far more than the general consumer, but the major reason is that they are simply stuck within a familiar routine and unable or willing to engage in the time-consuming and frightening process of transitioning to an unfamiliar system.

However, more businesses are planning ways to make the change, realizing the amount of time and money they can save without the arduous process of preparing, verifying, sending, and replacing checks.

The added security that comes with modern security technology involving digital payment methods is another benefit that many businesses wish to enjoy, as well.

For consumers, the rare instance when they find they need to make use of a check usually comes when it is a requirement for a stubborn business, but perhaps in the future, even this will cease to be the case.