Many of us Canadians stubbornly cling to cheques: we write cheques, we receive cheques, we deposit cheques. It’s time to stop. They’re expensive, insecure, and inefficient.
The status quo is comfortable
Many businesses know that it’s important to find ways to optimize operations and decrease costs. Studies show a significant decrease in business costs resulting from the switch from cheques to electronic forms of payment.
Unfortunately, change can be a big hurdle. As a Chartered Professional Accountant, sometimes when I make a recommendation to a client, such as moving to a different type of payment, I have to convince not just the owner of a business, but in the case of a larger entity or a charitable organization, I have to speak to several people on the board of directors, most of whom are quite reluctant to consider something new.
If you’re a cautious person, especially when it comes to payment processing, you’re not alone.
But don’t get stuck in the past
I was once speaking to a potential client. This client’s bookkeeper had been with her for a couple of decades, but the bookkeeper was about to retire.
As we spoke, she revealed to me that she does not trust technology and in fact she refuses to even use online banking. No matter how much I tried to explain that the only one in charge of her account is herself, she still preferred going to the branch for each transaction, often daily. She explained that the branch was close to home and she didn’t mind.
I did not take on this client. I just felt it would be too difficult to justify my rate in such an inefficient operation. If your business gets stuck in the past, you’ll have significantly fewer choices in terms of qualified people you can hire.
Cheques are not secure
Have you run into any of the following scenarios yet?
- The bank makes a mistake and allows a fraudulent cheque to be processed.
- The cheque does not reach the correct destination in the mail.
- The recipient makes an error, such as misplacing the cheque.
On the more innocent side, a vendor can deposit a cheque but later forget, or they can make a mistake when reconciling bank statements, and then complain that they didn’t receive payment. Depending on how much time has elapsed, it can take time and resources to resolve the situation — as a busy business owner, what do you want to focus your time on?
Some more sinister things happen too, such as cases of actual fraud. Maybe it hasn’t happened to you, but it’s not as rare as you think. Below are two examples from my own experience.
A client issued a cheque and it cleared. No issue on our side. However, a while later the vendor complained about not receiving payment. It turns out they never received the cheque in the mail. It’s not very difficult for a fraudster to intercept mail and deposit it in a similarly named company, which is likely what happened based on the bank investigation that followed. The investigation took several weeks.
Another client had a cheque clear… but it wasn’t a cheque my client ever issued. Based on the investigation, it looked like the fraudster engaged in some photocopy magic and created a whole bunch of fake cheques with different account numbers and made deposits in various banks to see if anything cleared. In fact, when we saw a copy of the cheque it didn’t even have my client’s name on it.
The good news: because the second client had fully transitioned to using electronic payments, as soon as we logged in to online banking, the cheque was so noticeable it was practically yelling at us to do something. We immediately contacted the bank and got the funds back. The next day, the same thing happened! Clearly the fraudster caught on that ours was a real bank account. We again got the funds back, and unfortunately had to close this account. Transitioning bank accounts was relatively smooth because we had no cheques in transit.
The hard costs of cheques
A new business cheque book can cost anywhere from $100 to $300. A company with multiple bank accounts (such as CAD and USD), or a company that needs its logo on cheques, will sometimes spend more. Let’s say each paper cheque costs $1. I am not including the cost of mistakes or void cheques.
Then, if it’s impossible to hand someone a cheque in person, it needs to be mailed. Let’s say that’s $1 in postage. So, at a minimum, a company spends $2 just to get a cheque out the door.
As we know, banks charge fees. Some banks charge a fee for each cheque that clears. If you want to avoid this you might have to maintain a minimum balance or change to a different fee tier. And what about correcting for errors? A stop payment can easily cost $10 each. Each cheque can end up costing $3-$4.
Paper paper everywhere
If a business is organized, the owner takes the cheque stub, staples it to the original invoice, and neatly files it. Or maybe in your company, you pay someone else to do it. Some companies have very few payments, so it’s not a big deal. But some have a lot.
How much paper do you store in your office or in a storage space? How easy is it to find later? Is your paper secure and protected? Could the time and money managing paper be spent better elsewhere?
The physical can tie you down
As I write this at the beginning of summer 2020, when Canada is experiencing various shut downs related to COVID-19, I sometimes wonder about that potential client that visits her bank branch every day. I can only hope that her business is able to operate and that she’s safe.
How are you managing your business during the pandemic? Do you physically go to your office or bank? Does the bookkeeper drop off a stack of cheques for you to sign on your porch, in a plastic bag to protect them from the elements?
You’re not all in the office anymore
Imagine this: a charity needs to pay a supplier. The bookkeeper issues a cheque. Each cheque requires signatures from any two of the signatories on the board. They all live in completely different parts of the city.
Usually, an employee (or sometimes, a volunteer) has to get to each signatory and then bring the cheques back for mailing. Or maybe the charity requires that you come in to sign cheques on location. Even during normal times, this can be a bit of a pain.
Now, imagine you’re a signatory on the board and there is a pandemic. You are worried because you have an immuno-compromised family member. But you need to sign those cheques immediately because the charity is in financial trouble and it’s organizing an emergency online fundraiser and the web developer wants to be paid right now or else it won’t happen.
There are alternatives!
I hope I have convinced you that it’s time to start looking at other options. You probably know of, or have even used, some forms of electronic payment. But how can they be used by your business in an efficient manner?
There are many alternatives to cheques, including Interac e-Transfers, EFT/ACH, wires, and companies that specialize in accounts payable payment processing. In subsequent articles, I will explain these in more detail!
About the author
I am a Chartered Professional Accountant working somewhere in Canada. I provide controllership, training, and consulting services to small and medium sized businesses. I also work with non-profit organizations. I write only about my experiences in the business world and I am not selling or advertising any company or service, including my own. Audrey Silva is my pen name.