A growing number of consumers don’t hesitate to buy a cup of coffee using an iPhone, bid for a dress on eBay and pay for it via PayPal, or purchase a sofa on OverStock.com with virtual bitcoins. But for American businesses, the old-fashioned paper check remains the preferred payment method.
Businesses in the U.S. still pay50% of their bills by check, according to a September survey by the Association for Financial Professionals. That’s down from 74% in 2007, but the rate of decline has slowed, suggesting stubborn barriers to change. “Businesses know the check system works. It’s been around for a long time, and they feel very comfortable with it,” said Magnus Carlsson, a manager at the trade group.
That comfort comes at a price. Bank of America estimates that a business check can cost an aggregate of $4 to $20, based on the price of the check and shipping, plus the time employees spend writing, mailing, collecting and reconciling the check. While it’s easy to drop a check in the mail, checks are a burden on the economy. Simply issuing and depositing checks cost U.S. businesses between $26 billion and $54 billion in 2010, according to MineralTree Inc., an electronic-payments company.
U.S. companies lag far behind their counterparts in Europe, Japan and even Brazil in the world of e-payments. American businesses and consumers wrote 21 billion checks in 2012, according to the Federal Reserve. That’s more than four times as many checks as were written that year in the European Union’s 28 member countries, according to the European Central Bank.
Some companies find that using checks has its advantages. The extra time it takes for a bill payment to make its way through the postal system gives the company a few extra days of liquidity. Checks, which became ubiquitous in the early 20th century, are also easy to use. The Fed’s centralized check-clearing system allows the money to move easily between accounts across a patchwork of thousands of banks. Checks can make life easier for corporate treasurers because they contain more information than many e-payments, allowing businesses to quickly match payments and invoices. E-payments, such as wire transfers or payments through automated clearing houses, don’t always include invoice details, making it harder to reconcile.
The Fed has been looking for ways to encourage e-payments. The central bank noted that other countries have jumped ahead in creating real-time e-payment systems, especially via mobile devices, and the U.S.’s continued reliance on paper checks hobbles its global competitiveness.