As the Mark Twain saying goes “The report of my death was an exaggeration”. Despite predictions year after year of checks going away they are still very much alive and in use with Business Managers and Family Offices. Our recent market survey found that over 67% of firms still use [paper] checks to pay bills on behalf of their clients. With a surprisingly large percentage of firms still using paper checks, we wanted to break down the cost, both financially and otherwise, to firms that still use paper checks.
To understand the true cost of a check, we first must understand the process a firm goes through when paying bills with paper checks, which typically includes:
- Mail is received
- Bill is sorted and routed to appropriate desk
- Bill is recorded as an invoice in the accounting system/bill pay system
- Invoices are approved for payment
- Check is printed and combined with invoice for review for CFO
- Check is batched with other checks for final approval and signing by client
- Research and answer questions final approver may have
- Checks are recorded in accounting software
- Envelope is stuffed and stamped
- Check is dropped in the mail
- Correspondence with vendor on payment status
- Reconcile payment between bank and accounting software for each check
- Smash head against the wall wondering when it will end
This process may work for a handful of checks per month and one or two clients with a limited amount of entities, but it does not scale beyond 20 or more entities and a monthly transaction volume that may easily be 100+ checks per month. Besides the time that each check takes to process, you also have hard costs to consider as well.
Hard Costs of Paper Check Processing:
- Check stock
- Printer/copier ink cartridges for printing checks, invoices and envelopes
- Storage fees for on or off site paper storage for audits and reporting
- Monthly bank fees:
- Check reconciliation fees
- Stop payment request processing fees
- Check imaging fees
- Positive pay fee
Total Financial Cost of Paying Bills by Check:
Depending on how many checks your firm is processing, the cost of issuing a check can range from $4 to $20 per check (source: https://www.checkissuing.com/blog/the-cost-of-issuing-checks/). The cost will differ based on the number of checks you process, the amount and cost of labor involved, and the cost of supplies. According to the Wall Street Journal, checks can be five times more expensive than e-payments. E-Payments also give firms better control, viability and predictability. A business can easily spend up to $25,000 per year on materials, labor, postage, and bank fees paying bills with checks.
The Cost of Fraud
Many Family Offices prefer paying bills by check. It gives the illusion of control when the founder can sit down with the CFO and review the approval packets and sign the checks for the bills that need to be paid that week. This ritual makes it feel like there are good financial controls, but how secure is it? Also, what transparency and control do you have over the payment once the check leaves the office?
Check fraud is estimated to be in the tens of billions each year. The kicker is the average fraud scam can last 18 months before being detected. Issues can be caused by having an accounting system that is separate from the firm’s treasury management system, but also by checks getting intercepted in the mail. Think about the financial information that is available on a check and what a bad actor can do with that information.
Our clients tell us that COVID-19 has shown them how important from a business continuity standpoint to reduce both the amount of incoming mail and the need to print and mail checks. Both are weak points in a business environment that is dependent upon remote processing.
While it may never be possible to get rid of checks entirely, you can take the additional step of using positive pay. Positive pay uses a file sent from your firm to the bank that details your outstanding checks. It is available from most commercial banks. For more information see https://www.cnb.com/business/treasury-management/fraud-prevention/positive-pay.html.
Positive pay is completely automated with AgilLink’s interface with City National Bank. Once the bills are paid and checks processed, AgilLink delivers the check information (Check #, Payee, and Amount) as the checks are recorded and printed, no additional labor needed.
Deposit products and services are offered by City National Bank. City National Bank is a subsidiary of Royal Bank of Canada.