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COVID-19 crisis amplifies paper check’s shortcomings

The following is an article written by Billtrust President, Steve Pinado, for the Q2 2020 issue of Perspective by CRF, the official publication of the Credit Research Foundation.

There have been many times over the last several decades where new technologies were thought to finally bring an end to the paper check. However, time, utility, and an aversion to change, has proven these projections to be wrong, and although its use in B2B commerce is declining, the check continues to play a major role in B2B transactions. After all, they’ve been around a long time — the first printed checks are traced to 18th century England when serial numbers were placed on them to track or “check” on them. 

When checks started to gain acceptance, bankers discovered a problem which still exists today: how to move these pieces of paper and collect money due from so many other banks. At first, each bank sent messengers to the other banks to present checks for collection, but that meant a lot of travelling and a lot of cash being hauled around in less than secure conditions leading to the first clearinghouses.

Fast forward 300 years, and the check is still with us, but there is a chance that the check might be facing one of its biggest threats yet: the operational challenges exacerbated by the COVID-19 global pandemic.

Like many things occurring during the crisis, the paper check’s shortcomings are amplified, especially against a backdrop where many organizations and offices are closed leaving millions of workers doing their jobs from home. While checks may not completely disappear, the pandemic has forced companies to look at how operations can be digitized and automated, including paying and receiving invoices, applying cash and effectively managing collections. Here’s a look at what is making today’s accounts receivable professional realize that checks just aren’t cutting it.

A need to pay — and accept payments of any kind — from the comfort of home

No one is impervious to the impact of COVID-19, especially when it comes to the workplace, or lack thereof. Because of this, accounts receivable and accounts payable teams across the world need to be able to make and receive payments from the comfort of their homes, and creating and processing paper checks doesn’t fit into this new normal. 

Young professional woman paying via credit card in home office.

On top of this, for many businesses, this is an ‘all hands on deck’ situation where optimizing employee resources to maintain both back office operations and customer service levels is of the utmost importance. Unfortunately, many businesses are operating with reduced headcount and will continue to do so, meaning bandwidth becomes even more scarce for many companies. In these scenarios, processing paper checks becomes an even greater and irrational burden, especially with cash application teams working remotely for the foreseeable future. Even after the pandemic subsides, a more permanent shift to remote work is likely to take place making adoption of digital payments more prevalent and accelerating automation across the entire order-to-cash spectrum. 

We all know why checks continue to be appealing to many businesses — mass acceptance, an easy-to-verify audit trail, reliable remittance advice and perhaps most widespread, an overall reluctance to change and put new processes in place. We also know that, despite digitization, there will always be exceptions where using a check makes sense. True digital transformation and the ability to enable remote work means being willing and able to accept any type of payment, which can be daunting to many suppliers. That’s because a ‘digital payment’ from a buyer can be entirely manual for a supplier, and when the corresponding fees and the reconciliation processes vary so widely, businesses have often chosen to stick with accepting paper checks. 

Digitization in this current climate is essential, and suppliers need to adopt accounts receivable systems that permit flexible payment acceptance in multiple payment channels.   

Increasing cash flow

We all know that cash flow is central to the growth and success of any business. When companies experience  cash flow reductions and DSO increases, they are often a result of friction caused by outdated payment methods and processes. The inefficiency in payments flowing between buyer and seller is ripe for disruption, and we are starting to see payment networks that address this, serving as a hub to capture a payment and standardize how it is received by the supplier — without having to ask buyers to change their methods. This, and other measures such as more up-leveled collection processes that remove unnecessary friction, can help ensure companies don’t lose their cash flow lifeblood. Ultimately, it is essential that suppliers pick up the pace in digital transformation across the A/R spectrum to keep cash flowing and drive efficiency in their businesses. When done correctly, suppliers are able to implement dynamic rules based upon their business objectives to accept the right payment via the right channel at an acceptable price point. Suppliers also have an opportunity to deliver great customer experiences that will motivate buyers to pick up the checkbook less. When transformation is achieved in these ways, the power of accounts receivable automation and digital payments becomes undeniable, and for the check, that power may be hard to overcome this time around.

Young professional man looking at laptop in office and smiling.

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