By Sarah Broussard, Controller – Broussard Logistics
On February 24, 2015, the Wall Street Journal reported that JPMorgan Chase – the nation’s largest bank – announced it would cut 300 branches by the end of 2016 along with many of the employees in those branches. The move includes increasing the number of ATMs in branches to about 13,000. The decision, as executives described it, was an effort to “shake up how the bank services its retail customers.”
In other words, the largest bank in America is replacing people with technology.
Whether you have recently done some banking as a consumer, or you are the CFO or Controller of a company, you have probably noticed that technology is playing a much more prominent role. This is really not new behavior – widespread use of ‘direct deposit’ became commonplace over twenty years ago by many large employers and research shows 97% of consumers are highly satisfied with that practice. Today, consumers pay over $500 million in bills each year using direct payment via ACH, or Automated Clearing House.
So why are businesses in 2015 still cutting so many checks? Good question. With advancing technology, rising costs, and a rapidly evolving competition, adopting best practices in every area of business is a necessity. Taking care of your company’s finances is no different.
Here are the five reasons why you should consider paying vendors via ACH and eliminate the need for paper checks.
Fraud continues to grow as one of the biggest threats in the banking industry. Banks and credit card companies are issuing new cards with embedded computer chips in addition to magnetic strips to combat this phenomenon. Writing manual checks and sending them through the mail is a 20th century process that exposes both parties – the payer and payee – to unnecessary risk of fraud. ACH payment dramatically reduces this risk.
Cost of Processing
Businesses in the U.S. still pay half of their bills by check, according to a September 2014 survey by the Association for Financial Professionals. In a recent WSJ article, it was reported that Bank of America estimates that the cost of writing a business check is between $4 and $20, based on writing and mailing the check, plus the employee time invested. That is an enormous waste of money considering some estimates place the cost of an ACH payment at 15 cents. This reason alone makes it worth the switch.
Cash Flow / Access to Funds
Profit is important, but cash is king. Managing the flow of cash and timing receivables and payables is a critical function of any accounting department. The delay in access to funds with ACH payment vs. paper checks is the difference between 7-10 days in most cases, and just 24 hours or less. When humans are involved more often, the possibility of human error, oversight, and mistakes increase. Improving flow and access while limiting mistakes is another solid reason.
Speed and Tracking
ACH payment dramatically reduces the time during which neither the payer nor payee has access to the money. This lag is never good for either party. In addition, tracking of payments is much easier when this process is adopted. With ACH payments, inflow and outflow of cash can be sent by email summary on a weekly basis. Better and more accurate data gives you as CFO improved information to make faster decisions that can impact the company in a positive way.
Best Practices in Technology
Technology is an enormous factor in every business now. The only constant is that it will change how we do business every year. Embrace that fact and your company will survive. Ignore it, and you risk losing ground and ceasing to exist – it is that simple. Banks are forcing this change upon us whether we like it or not. Their systems and services are pushing us towards electronic payment processing everyday. It limits their exposure as well as ours if we adopt it and integrate into our business processes. The longer you wait to make this shift, the more painful it will be when the time comes.
It is clear that simply the cost of cutting a check versus ACH payment is reason enough to adopt this strategy in your company. MineralTree, an electronic payments company estimates that cutting paper checks costs the U.S. economy between $26 and $54 billion each year. There is really no sound justification to contribute to that total. Add the other four reasons listed above, and you have a sound strategy that can provide real savings to your business in 2015.
So what are you waiting for?