Uncovering the Inefficiencies of Paper Checks

Uncovering the Inefficiencies of Paper Checks

Author: Ryan Whiteley, Director, Corporate Treasury Services

Payments are critical to every business operation. However, payment processes are not without their challenges, particularly when a business uses paper checks.

The practice of issuing checks can be time-consuming, error-prone, and vulnerable to loss or theft, leading to payment delays and potential fraud. To understand in greater detail where inefficiencies and the potential for serious issues arise, let’s follow the trail of a business paper check…

Tracing the Journey of a Business Paper Check

Payment pains kick in as soon as an invoice is received because it must be sent to the proper personnel for approval. This could be the manager of the department that received the goods or services or even the CFO.

We’re talking about busy members of the company who may need time to review and approve payments. It’s a potential bottleneck, as members of the accounting team must follow up with authorized personnel and spend time ensuring that proper approvals are granted.

Once the invoice is approved, a check can be prepared by the accounting department. Checks often include details such as the payee's name, the amount of the payment and the invoice number. Given that employees must manually transfer information from the invoice to the check, this is a step that can be susceptible to errors.

Next, the check must be signed by an authorized individual within the company, usually the CFO or company owner. Again, delays can creep in as AP teams wait for busy executives to add their signature to a stack of checks.

After the check is signed, it must be mailed to the recipient, a process that can be slow and inefficient, especially if the payee is in a different city or country.

Once the check is received by the vendor, it needs to be cashed. This is another phase in the check’s lifecycle where errors can be introduced, especially if the receiving organization is manually entering the details from the check onto bank deposit slips.

As we finally reach the end of our paper check’s journey, the issuing organization still has work to do. After the check is submitted to the bank for processing, the paying company often needs to track down the check, ensure it was received and reconcile the organization’s own ledger to demonstrate that payment was made.

Keeping in mind the process inefficiencies described, issuing paper payments can present serious time and cost disadvantages to businesses. In fact, studies show that the average cost to issue a paper check is $38 (not including hidden costs like lockbox fees, tracking and escheatment). Fortunately, technology has evolved to the point where automating your AP lifecycle can reduce the number of pain points a business faces and significantly increase payments efficiency.

Paper Checks in the Digital Age: Streamlining Your Payments Process with AP Automation

Businesses that select the right payments automation system for their needs can realize significant gains in performance, including the ability to process invoices 14 times faster and at a $15 per invoice cost reduction.

Electronic approval systems can cut the time it takes to get invoices approved by routing documents to the relevant department or person and automatically sending reminders about outstanding items. They also reduce the workload on accounts payable staff, allowing them to operate more efficiently.

When it comes time to issue payments, software that automatically generates checks upon invoice approval can move a paper payment across its journey faster and more accurately. These systems pull information from invoices, reducing the manual effort and the opportunities for error. Electronic signatures or pre-authorized signatures improve the process further by eliminating the need to track down someone to sign the check.

For greater efficiency, AP automation can also support payments via ACH transfers or virtual credit cards. By using electronic payments, businesses can avoid the costs associated with checks, including paper, printing, postage and manual processing. These methods also reduce the potential for theft and fraud.

Finally, automation improves the reconciliation process by facilitating automatic notifications to both the payer and payee across the payment journey. By integrating payment data with accounting software, businesses can also automate the reconciliation process, reducing the need for manual data entry and improving accuracy.

Learn more about AP Automation and how it can help your business.

About the Author

Ryan has more than 15 years of experience in treasury management and corporate payments. In his current role, he advises clients on technology solutions for controlling risk and liquidity.