70% of organizations experience check fraud, but 81% of finance professionals are still using paper checks. It calls to mind the adage, “The definition of insanity is doing the same thing over and over again and expecting different results.” Paper checks have the highest fraud rate of any payment method, and check fraud levels are only rising. This is a fact, so why are paper checks still an integral part of everyday financial processes?
The modern CFO understands the hindrance that paper checks put on their business. They no longer cling to the nostalgia of check writing. These forward-thinking finance leaders recognize the benefits of automating payments and are executing on a new vision—completely eliminating paper checks from their operations.
The Hidden Costs of Paper Checks
The cost to process a paper check ranges between $4 to $20. Comparatively, an automated ACH (automatic clearing house) transaction can range anywhere from $0.26 to $0.50.
The savings are clear from a monetary standpoint, and many financial leaders can see the immediate benefits of transitioning to electronic payment methods. But what is even more critical is the operational transformation that occurs when paper checks are no longer a burden on your business.
If your company is like mine, then your CFO or Controller has a lockbox of checks now stored somewhere in their home. COVID-19 and the shift to 100% work from home has changed so many aspects of financial operations — including requiring your key employees to secure critical financial items in their home physically. And in my case, away from the curiosity of toddlers.
The true value of automating payments is not only cost savings but the complete removal of that one last layer of risk related to the physical storage and safety of checks.
Key finance players understand this and are already investing in modernizing their processes and payment methods. In 2019, the Association for Financial Professionals noted that organizations believed that manual processes were a core operational problem for finance teams because of check fraud. To streamline operations, future-focused financial institutions are combating this head-on — starting with the Bank of New Zealand, which will stop supporting the use of paper checks in 2021.
5 Financial Benefits of Automation
The first benefit is the most substantial — hard cost savings. Eliminating the costs of checks, envelopes, stamps, and labor, reducing time spent in the office managing the paper check process, and removing the need to track down approvers for in-person signatures will immediately help to streamline a heavily manual workflow.
The second benefit is increased fraud reduction. Not only are electronic payments more cost-effective, but they are also more secure. With ACH, only 22% of organizations experience fraud as opposed to 70% with paper checks. Also, electronic payments cannot get lost in the mail, and all intermediaries are removed — significantly reducing the risk of tampering.
The third benefit is improved controls and visibility. By implementing the right technology, CFOs can gain 24×7 real-time insights into payments. This helps limit the number of lost and bounced checks, improves payor and payee visibility, and increases overall payment controls.
The fourth benefit is enhancing working capital and cash flow. Automation enables faster payment processing, which gives your business increased command over short-term cash flow.
And finally, the fifth benefit — faster and more reliable reconciliation. Automation dramatically increases payment processing efficiency by allowing for the consolidation of all payment types across multiple currencies into a single, standard-format file. Typically, with real-time ERP integration. Eliminating checks also removes the need to manage returned checks that failed to reach their destination.
Paper Checks in the “New Normal”
The modern CFO’s environment is rapidly changing, and it falls on them to respond with the agility and flexibility needed to drive the business forward.
With increased remote work, the need for automation has never been more apparent, and the removal of paper checks has never been more pressing. All paper-based operations — like invoice collection, processing, and check writing — creates unnecessary inefficiencies. And the increased need for digital governance, controls, and audit capability is enticing companies to look to technology for a quicker, more productive solution to enable the business long-term. With all these added benefits, forward-looking CFOs are taking note and making the elimination of paper checks a strategic priority.
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Sarah Spoja can be reached at [email protected].com
This column does not necessarily reflect the opinion of FinLedger’s editorial department and its owners. To contact the editor responsible for this story: [email protected]