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Matthew Dragiff

Matthew Dragiff - SunGard AvantGard Payment Services

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17 February 2011  |  6071 views  |  5

For years we’ve been hearing that checks are going away, yet they are still used for the majority of B2B payments in North America.”  I have heard that statement at nearly every trade show that I have attended this year.  The trend toward electronic payments has been strong in the retail banking world where the ever growing availability of online banking and continued growth of debit card usage has resulted in declining check volumes. 

But on the commercial side, analysts estimate that 10.6 billion B2B US check payments were made in 2009 and 1.99 billion B2B ACH transactions were made in 2009.  That’s 84% checks, 16% electronic.  Why do companies continue to pay by check?  In this multi-part blog series I will explore the reasons for the continued use of checks for B2B Payments. In this post, I begin with reason number one.

Reason #1 - Checks are Easy.  We’ve built up business processes around checks and when you walk through what actually happens when you issue payments you see that this really is a well oiled machine and it is part of the reason why it has been difficult to migrate away from checks.  We have ERP systems in our organizations setup with checks as the default payment method.  That’s the way they were designed and it is the easiest way for most to make their payments.  We’ve also got a banking system that for decades has been making it easier and easier for businesses to process check payments.  Efficiencies in lockbox processing and the advent of electronic check clearing have nearly made check processing fully electronic.  So we’re benefiting now from these mature processes that have been established.  The irony is that the payment data begins life in an electronic format, is converted to paper for transport and then is reconstituted in an electronic format upon receipt.

And the key reason why paper is used for transport?  Because to make a payment via check, you only need your supplier’s address (which is included on the invoice).  Electronic forms of payment require that you know your vendor’s banking information.  Gathering this information is time consuming and never-ending; this banking information changes and requires significant effort and cost to maintain.  While checks are expensive and labor intensive, some will argue that they are easier.

Which is easier for your organization?  Issuing checks or maintaining electronic banking information?  In switching your organization to electronic payments, are you being met with the argument that paper checks are just easier?


Comments: (5)

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 18 February, 2011, 08:00

There's no doubt that checks are easy. But, they're equally easy on both sides of the Atlantic. It is true that the supplier name and address - the two pieces of information required to cut a check - are readily available on the supplier's invoice. But, in Continental Europe, if not also in the UK, bank details are as easily available - not just in invoices but even in the footer section of company letterheads. This makes B2B ePayments fairly easy in Continental Europe.  

Why is it more difficult to get hold of bank details in the US? I presume it has to do with support of certain remote ACH payment types in the US, which force individuals and companies to keep their bank details confidential, unlike in Continental Europe.

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A Finextra member | 18 February, 2011, 14:47

"If it ain't broke, don't fix it," is a saying that earned a lot of repetition a decade ago. 

Yes, making payments via checks for US to US B2B is part of a well oiled process.  In today's environment, business units must show value to the company as a whole to get an IT project the green light. 

Moving from Check payments to electronic payments would require significant IT resources -- soft dollar as well as hard dollar -- time, people, hardware, and software.  

Where is the value to the company in relation to other projects that might generate revenue instead of cost savings?  How do you generate a business case justifying making the change when "it ain't broke?"


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Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 18 February, 2011, 15:24

@Sandra G: This age-old saying has frustrated many a technology provider over the years, including me! But, there's an approach to counter the apathy resulting from it, and it is: "What if you don't know it's broken?" The technology provider needs to invest far more in creating an alternative packaging of their offering in order to carry off this counter approach. But, from personal experience, I can confirm that it has worked on many occasions, especially when the alternative packaging can be made to resonate well with industry hot topics and business pain areas.  

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A Finextra member | 18 February, 2011, 16:40

But this is part of the issue -- what "pain" is doing checks over electronic payments causing?  Until the cost of paying by checks becomes painful - there isn't a business driver.

In Europe, the introduction of the EURO has had IT organizations updating payment applications.  Since they are already updating applications and processes, it becomes a value add to move from check to electronic payment. 

This isn't true in North America -- Canada and the US aren't changing currencies.  The cost of paying by check has increased but only nomially.  And organizations that have rolled out portals that allow their customers (companies as well as individuals) to pay online mostly benefit small organizations. 


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Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 18 February, 2011, 18:05

@SandraG: While it's impossible to find a solution to this problem via these comments, let me simply point out that there's a lesson to be learned from the drivers of the migration from checks to epayments in Europe. Having personally experienced the transition from DM to Euro in Germany, I can say that B2B ePayments were the norm in Europe well before the launch of Euro. The drivers lie not in the cost of checks versus epayments - as a matter of fact, the migration happened despite checks being free and epayments attracting fees in most parts of Europe - but in the potential of epayments to deliver efficiency gains in the end-to-end payments process. 

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