Despite significant advancements in digital finance, many firms continue to rely on outdated, paper-based methods for financial transactions. A recent study underscores that a large percentage of companies still make use of paper checks, incurring high costs and inefficiencies.
Businesses have historically faced challenges in transitioning to digital payment systems. Early reports indicated that companies were hesitant to invest the time and resources needed for such a shift. However, the transition from paper checks to digital payments has been slow. While the costs and inefficiencies associated with paper checks were well-documented, the initial investment in digital platforms presented a barrier for many businesses.
Hidden Costs of Paper-Based Methods
Continuing to utilize traditional methods like paper checks and manual accounts payable (AP) and accounts receivable (AR) processes may seem economical. However, the hidden costs are substantial. These costs impact not only financial performance but also operational efficiency and scalability. Direct expenses, such as printing, mailing, and processing paper checks, accumulate rapidly, especially for companies processing large volumes of payments each month.
“Businesses are worried about the investment in terms of time and resources,” said American Express (NYSE:AXP) Vice President of Marketing, Business Blueprint and Small Business Banking Brett Sussman.
Additionally, paper checks have slower processing times compared to digital payment methods, leading to delays in clearing funds. This inefficiency often causes cash flow issues, compelling businesses to depend on costly lines of credit. Manual AR processes hamper cash flow and forecasting, linking directly to outdated methods.
Alleviating Employee Burdens
Manual handling tasks associated with paper-based methods are labor-intensive. Employees must complete several steps, including writing, printing, signing, and mailing checks. This process is not only time-consuming but also prone to errors, increasing the labor required to correct these mistakes. Furthermore, accessing real-time financial data becomes challenging, delaying transaction recordings and impeding informed decision-making.
“The inflexibility of traditional systems and platforms have prevented lots of companies from moving forward and keeping up,” said Illya Shell, COO of Boost Payment Solutions.
Despite the clear benefits of automation, only a small percentage of small business owners have fully automated their AP and AR processes. This lack of automation limits their ability to gain insights and growth opportunities. The susceptibility of checks to fraud is another critical issue, reinforcing the need for digital transformation.
“If you cut out checks, you cut 60% of fraud right there,” noted Finexio founder and CEO Ernest Rolfson.
While the shift to digital payments requires an initial investment, the long-term benefits far outweigh these costs. Digital methods enhance efficiency, reduce labor, and provide real-time financial data, which is crucial for making strategic decisions. As businesses gradually transition towards automation, they can expect improved cash flow management, reduced fraud, and better operational efficiency.
