The first known payment by paper check occurred in the early eleventh century when an Iranian traveler visited the city of Basra and gave a merchant written instruction ordering his bank to make a payment from his account. While the U.S. economy continues to rely on checks as a form of payment , that reliance is steadily decreasing year after year. Just as the introduction of the paper check provided convenience and safety over paying with cash, the introduction of electronic payments increased convenience and safety over the paper check. So, how can your business eliminate the need for paper checks entirely?

According to the Philadelphia Fed Study, the number of paper checks is steadily declining every year. There were 28 billion checks processed in 2009 and has been dropping 1.2 billion per year since then. At this pace, the paper check will be extinct by 2026.

Advocates for groups who typically rely on paper checks, such as the elderly and un-banked, claim that eliminating the check would cause an undue burden on some people. Many still believe that the check system is immune to fraud and is safer than electronic forms of payments. What these individuals don’t know is that once a check leaves their hands it has a very short lifespan.

In October 2003, Congress passed the Check Clearing for the 21st Century Act (Check 21). Before Check 21, checks had to be physically transported from the bank where they were deposited to the bank paying the check, a slow and expensive process. When the FAA grounded all airplanes in the wake of the 9/11 terrorist attacks, almost $50 billion dollars in checks were left unprocessed for days. That prompted the passage of Check 21 which allows banks to use electronic images of checks rather than paper. Check 21 has been a tremendous success. Almost no payments settled between banks use paper checks anymore. The introduction of remote deposit means that many checks that you mail don’t even make it to the bank, and the ones that do are converted by the bank to electronic files almost immediately.

3 Ways to Eliminate Paper Checks In Your Business

Purchasing Cards

A Purchasing Card (P-Card) is a type of Commercial Card that allows organizations to take advantage of the existing credit card infrastructure to make business-to-business (B2B) electronic payments for a variety of business expenses (goods and services).  P-Cards are issued to employees responsible for making purchases or payments on behalf of their employer. Suppliers accept P-Cards for payment, utilizing the existing credit card infrastructure for payment processing. Transaction data is captured by a supplier’s point-of-sale (POS) system and transmitted through the card network.  Company benefits include:

  • Reduced costs
  • Faster receipt of goods/services than with traditional payment methods
  • Reduced administrative burden allowing more time for value-add tasks
  • Supply base consolidation
  • Re-enforcement of general purchasing best practices
  • Improved spend authorization controls

Electronic Payables

Many banks and software programs offer ways to pay invoices electronically.  Benefits to end-user organizations generally include:

  • Early payment discounts from suppliers
  • Reduced costs associated with check payments
  • Reduced (or eliminated) late payment fees
  • Minimized communications (and time spent) with suppliers due to more timely payments
  • Reduced exposure to fraud

Payroll Cards

With payroll cards, an employee’s wages are loaded onto the card via direct deposit. This gives employees access to their money through an ATM and at virtually every branch of every bank. They can also use the card to pay bills, make purchases, and transfer money. This makes payroll debit cards especially beneficial because employees can use 100 percent of their wages.  Some advantages to employers include:

  • Low-cost availability for any size company in any industry
  • The ability to direct deposit 100 percent of employee wages each pay period
  • Eliminating the liability associated with paper checks
  • Decreasing the number of paper checks created and distributed, which limits exposure to check fraud and identity theft
  • Reducing the use of natural resources by going green—and saving money in the process
  • Increasing employee satisfaction and retention

George Bernard Shaw said “Progress is impossible without change, and those who cannot change their minds cannot change anything.” Should you reevaluate the way you think about paperless payments in your organization?  Paper checks have served us well, but the time has come to leave them in the past.

Jennifer Duff

As CFO, Jennifer is responsible for directing MPAY’s financial activities as well as participating in the strategic management of the company. She is a knowledge enthusiast with a passion for making things better through understanding and awareness. Jennifer is a CPA, CPP, and President of the Roanoke Chapter of the Virginia Society of CPAs.