The True Cost of Paper Checks

Whether your company is a start-up or a billion-dollar operation, one thing is certain – you must meet financial obligations in a timely manner. After all, on-time payments are key to retaining positive relationships with important vendors and keeping your business running smoothly. However, issuing and reconciling frequent payments to many vendors is cumbersome, risky, and more costly than you may realize.

Vendor payments are particularly expensive for the 86% of companies that still use paper checks. If your company is one of them, consider the following information on the true cost of check writing. This extremely high cost is one reason 73% of organizations are currently in the process of switching from paper checks to secure electronic payments.

Paper Checks Have Hidden Costs

It takes time to acquire supplies, print and sign checks, mail them, and even keep the supplies secure. Unfortunately, these activities take employees away from their other tasks, which can lead to missed opportunities.

In addition to lost time, the cost of check printing supplies and bank fees can add up quickly. In total, the average cost of processing each paper check is $4. This figure includes labor, bank fees, check printing, and postage. Conversely, electronic payments cost just $0.28 per transaction. Using these figures, a switch from paper to electronic payments would result in an annual cost savings of $23,000 for a company that prints 500 checks per month.

Mail Delays Cost Valuable Interest

Due to the unpredictable nature of mail delivery, many businesses issue their checks well in advance of the due date to ensure the vendor receives their funds on time. In order to issue the check, they typically move the funds from an interest-bearing account to the appropriate checking account. Consequently, the business loses the opportunity to collect interest on payment funds during the “lag time” between placing the funds in the checking account and the check being cashed.

On a single small payment, a few days of lost interest is often negligible. However, companies often have hundreds of vendors with millions of dollars in required payments. Lost interest for these companies can add up quickly over the course of a year.

Fraud is Common with Paper Checks and Can Lead to Significant Losses

The prevalence of fraud is another common and costly issue with paper checks. In fact, about 680,000 cases of check fraud were reported in 2022 and losses from fraudulent checks cost upwards of $24 billion per year.

Check fraud occurs frequently in two scenarios. First, internal theft which results from employees intentionally issuing fraudulent checks for personal gain. Second, external check fraud that occurs when a person outside the company forges a false check or alters a legitimate one. In both of these cases, businesses often bear the brunt of the losses.

A Real-Life Example of Check Fraud

A nonprofit organization issued a legitimate check and mailed it to the appropriate vendor. Through no fault of their own, the check was intercepted by a local fraudster. That person altered the check to include a different vendor name, address, and memo line. Then, they cashed the check for over $35,000 – a devastating loss for the nonprofit.

Unfortunately, the check had been cashed by the time the organization learned of the fraudulent activity. They completed an extensive internal investigation to uncover the source of the fraud. Once they determined that it originated outside of their company, they alerted their bank and began the lengthy process of reclaiming the lost funds.

This story is not unique. In fact, the Federal Reserve Bank of Boston reports that check fraud is rampant because it is a “low-tech and relatively easy crime to pull off.”

In many cases, stealing and “washing” a check can be done with homemade tools and solvents found in common chemicals like nail polish remover. The startling simplicity of check alteration means your business is in danger from virtually any motivated fraudster.

One of the Boston Fed’s suggestions to prevent check fraud is to “switch to secure electronic payment methods.” These electronic methods do not have the same risk of interception and alteration – greatly reducing the risk of fraud.

Secure Electronic Payments Are the Solution to High Check Costs and Unnecessary Risk

In addition to reduced fraud risk, electronic payments eliminate many of the time-consuming tasks related to manual check printing. A few of the most common time-saving features include:

• Built-in security features. These features eliminate the need to create and implement in-house security protocols.
• Automated approval, payment, and reconciliation processes. These automations reduce manual work for check issuers and allow approvals to be made securely and remotely.
• Integration with interest-bearing accounts. These integrations allow companies to take full advantage of payment terms and capture interest until the payment due date.

These key features are the driving force behind a widespread shift away from paper checks and toward secure electronic payment solutions. If your company chooses to switch, you can reduce the time it takes to issue a check, gain additional interest, and greatly reduce your exposure to fraud.

Save Time and Minimize Risk with Automated Vendor Payments from ADM

At the American Deposit Management Co. [ADM], our American Payments Solutions [APS] saves you time and helps minimize risk. Our solutions allow you to make simple electronic payments to all your vendors without the risks associated with paper checks.

With our intuitive online platform and transparent reporting, reconciliations are a breeze. Additionally, adding our deposit management services ensures that your cash is as safe as possible and earning a nationally competitive interest rate while waiting to be deployed.

To learn more about how we can help you, contact a member of our team today.

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