Uncovering the Hidden Costs of Paying Suppliers with Paper Checks

Paying suppliers with paper checks is a costly proposition.

The median cost of sending a paper check is $3.00, compared to a median cost of $0.29 to send an Automated Clearing House (ACH) payment, per the Association for Financial Professionals (AFP).

There are typically no costs to a business to pay a supplier with a virtual card.

And with 40 percent of businesses admitting that they don’t track their payables costs, according to research from the Institute of Finance and Management, the costs of paper checks are likely higher.

Not surprisingly, 82 percent of businesses surveyed by AFP cited “reduced costs” as their primary motivation for converting to electronic payments.

Incredibly, these costs are just the tip of the iceberg when it comes to paper checks.

There are significant costs to paying suppliers with paper checks that are difficult for accounts payable departments to trace, including poor cash management, lost staff productivity, onerous reconciliation, missed early-payment discounts, no rebate opportunities, and fraud losses.

It’s time to bring the hidden costs of paying suppliers with paper checks out into the open:

  • Poor cash management: with check payments, businesses can never be sure when suppliers receive or cash their checks. This means that businesses cannot control their cash position.
  • Lost staff productivity: paper checks tie up accounts payable staff with check printing, manual signatures, envelope stuffing, affixing postage, and making trips to the post office.
  • Lots of supplier inquiries: with paper checks, suppliers can never be sure of the status of their payment. As a result, accounts payable staff are overrun by status calls and e-mails from suppliers that cost an average of $3.60 apiece to resolve, per benchmarking data.  Businesses also receive lots of calls from suppliers regarding lost or misplaced checks.
  • Tedious reconciliation: manually reconciling invoices with paper checks is time-consuming. Sixty-three percent of businesses cite invoice and payments reconciliation as a big pain point.
  • Inflexible control over the timing of payments to suppliers: businesses are optimizing Days Payables Outstanding (DPO) as part of their efforts to more effectively manage working capital. But paper checks offer businesses little flexibility over payment timing.
  • Fewer early-payment discount opportunities: the long cycle times and inflexible timing of paper checks slams the door shut on many opportunities for buyers to capture lucrative early-payment discounts. This is a big reason that most accounts payable departments are unable to capture most of the early-payment discount opportunities they receive from suppliers.
  • No rebate opportunities: paying suppliers with paper checks offers no opportunities for businesses to earn cash-back rebates that transform accounts payable into a profit center.
  • Fraud losses: Corporate America suffers 10 times as many fraudulent incidents involving paper checks each year as ACH and wire transfers combined, AFP reports. Paper checks also are responsible for more than twice as many fraudulent incidents as corporate cards.

Each of these hidden costs of paper checks increase corporate overhead.

Together, these costs can significantly impact the bottom line.

Electronic payments eliminate the hidden costs of paper checks with capabilities for alerting buyers when payments have been received, eliminating paper, printing and postage, automating invoice and payment reconciliation, accelerating cycle times for more early-payment discount opportunities, providing flexible payment timing, offering cash rebates, and identifying suspicious transactions.

Isn’t it time your business shined a light on the hidden costs of check payments?