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The Hidden and Overt Costs of Paper Checks for B2B Payments.

Nearly $10 per check. That is what market researchers estimate to be the cost of issuing paper checks. Contrast that with the roughly $1 per transaction for electronic payments (ACH). On the surface, that difference should catapult the migration from all paper checks to ACH to the top of your business priorities. But before you do, consider three critical questions:

  1. Do these numbers reflect the costs for your business accurately?
  2. What is your true return on investment (ROI) when moving to ACH?
  3. ACH may result in the loss of remittance information. What solutions can provide the value of ACH and the remittance information available in paper checks?

This article will enumerate the costs of manual back-office processes and check payments. Even if your business only runs some of these tasks in-house, you can use the list as a basis for quantifying your costs.

Labor Costs

Labor costs comprise the largest expense incurred, especially if your business runs in-house payment operations. This would be the printing and production of checks yourself rather than buying a book of pre-printed checks from your bank. Consider all of the steps involved in a fully manual process — from check approvals to handling payment exceptions.

1. Prior to Check Run

  • Clerk requests approvals on payments
  • Clerk prompts approvers to review payments until they respond to approval request
  • Approvers review requests, discuss discrepancies, and request additional documentation
  • Clerk searches and retrieves files to furnish additional documentation to approvers
  • Clerk adjusts payments based on approver directions and seeks credits, as needed
  • Accounting manager checks the approvals before providing final approval to print checks

2. Check Run

  • Clerk sets up the accounting system to run checks
  • Clerk retrieves check stock, prepares the printer, performs a test payment run, and corrects misprints
  • Clerk performs the check run
  • Clerk gets signatures on check (from the controller and/or other check signatories)
  • Controller reviews the checks for accuracy and questions abnormal amounts
  • Clerk provides documentation to controller for questionable payments
  • Clerk changes payment amounts in accounting system and re-runs checks, as needed
  • Clerk stuffs, stamps, and mails the envelopes
  • Clerk creates a positive pay check issue file to send to the bank to prevent check fraud

3. After the Check Run

  • Clerk addresses payment questions from vendors or suppliers
  • Clerk pulls transaction history from the business' bank records
  • Accounting manager or clerk retrieves check images from a bank in order to reconcile issues
  • Clerk responds to vendor/supplier, reconciles the accounting system for any changes
  • Controller reviews the checks for accuracy and questions abnormal amounts
  • Clerk manages returned checks by updating the accounting system, correcting mistakes and reissuing checks
  • Clerk responds to stop payment requests and updates the accounting system

Some factors will mitigate the steps and the associated costs. An accounting or financial system that automates approval workflows will eliminate many of the pre-check run activities.

Other factors will exacerbate the process. For example, more approvers and more complex approval rules complicate the process. More scheduled check runs per week results in repeats of these steps. And one-off or unscheduled check runs impose further time drain on staff time.

To calculate the labor costs for your business, use the figures above as a framework for identifying:

  • What are all the steps involved in your in-house process?
  • Who is involved in performing the tasks?
  • What amount of time do these individuals spend in performing these activities?
  • What are the fully loaded compensation costs of these staff members?

Materials, Supplies and Postage

To run in-house payment operations, businesses incur expenses for depreciation on magnetic ink character recognition (MICR) printers, envelope stuffing and sealing machines, postage and supplies, including highly secure check stock, MICR toner and envelopes.

Bank Fees

There is a cost to banks for processing the checks your business issues. To cover that cost, fees are then charged to your business. These costs may be included as separate line items in their bank statements or may be bundled with other charges. Businesses may also pay incremental charges for fraud protection, such as positive pay, check reconciliation services, and retrieval of transaction history and check images. All of these costs should be considered in calculating the total cost of printing checks.

Commerce Can Help

A quantitative decision to move to ACH or to stay with paper checks requires a full assessment of the costs of all options. Some costs are overt, such as supplies and postage; other costs are not as obvious, such as the costs to investigate and reconcile payment exceptions.

If you’d like to better understand the costs associated with your current payment processes, our team of knowledgeable specialists would be happy to help. Upon providing your information, our team will follow up to help you find the right solutions for your business.

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