Explaining the Disconnect: Accepting Checks but Wanting ACH for Customer Payments

When asked how they prefer to be paid, 63% of suppliers indicated ACH while only 25% indicated paper checks. If this is the case, then why are 83% of suppliers still being paid by paper checks?

Although I don’t consider myself a die-hard science fiction fan, I do enjoy the technology on display in movies such as Star Wars and Star Trek.  Who wouldn’t be thrilled with the notion of traveling through space at light speed or using a small, hand-held device to heal a crew member.  While we can’t do any of those things today, there a number of technologies available now designed to modernize the way we do business.  With faster, more efficient options at our disposal, it’s surprising that most suppliers still accept paper checks as the primary form of payment from customers.

In our 2015 Perceptions Study: Research and analysis of supplier activity in the areas of invoicing, payment and remittance, and credit and collections, we noted that 83% of respondents currently receive customer payment in the form of paper checks, 71% receive payment via Automated Clearing House (ACH) and 52% receive payment via Credit/P-Card.  Alternatively, when asked which payment method they prefer, 63% of those same respondents chose ACH while 25% selected paper checks (9% selected Credit/P-Card). This begs the question – why the disconnect between what suppliers get and what they prefer?

It's clear that the primary reason suppliers continue to accept paper checks is the fact that it's more familiar, not necessarily that it's more efficient or helps their organization get paid faster. ​

Ernie Martin, Founder and Managing Director

Why the reliance on paper checks?

Paper checks have been around, in one form or other, since the ancient Romans.  Throughout history, banking systems used a variety of promissory notes designed to guarantee the payment of a specific amount of money with the payer identified on the note. 

Fast forward to today.  Suppliers receive payment from customers in a variety of ways, but paper checks continue to be the most prevalent.  Yes, other forms of payment – such as ACH, Credit/P-Cards, wire transfers and others – have made significant inroads, but paper checks remain king.  Admittedly, there is no new technology or process that companies must learn in order to accept paper checks. In addition, paper checks almost always include remittance data, helping suppliers identify the purpose for the check in order to properly handle cash application.

The shortcomings of paper checks

Yes, paper checks have been around forever, but in our technologically advanced world, where business can move at the speed of light and companies are gaining a better handle on their order-to-cash processes, do paper checks still have a place?  Consider some additional facts from the 2015 Perceptions Study:

  • 83% of suppliers indicated that getting paid faster is the most important thing related to submitting an invoice.
  • Respondents also indicated that not ‘getting paid in a timely manner’ is one of the biggest challenges they face when receiving payment from customers.
  • ‘Lost payments’ is yet another big challenge suppliers face when receiving payment from customers.

Is it still necessary and practical to wait days or weeks for a check to be cut, mailed, received and deposited when all of that can now be done in a matter of 1 to 3 days?  It’s akin taking a train from New York to Los Angeles for a critical business meeting when one can simply complete the trip in a matter of hours by commercial jet.

Why ACH?

ACH was first introduced in the 1970s as an alternative to check payments.  Because transactions are completed much faster and fees are significantly lower than that of credit card networks, this form of payment becomes more attractive.  It’s also relatively easy to set up the acceptance of ACH payments with a company’s financial institution.  With greater standards and wider acceptance, ACH is becoming more ubiquitous for B2B transactions.

To help ensure that ubiquity, NACHA, the Electronics Payments Association, plays a key role in bringing about rules and standards, such as ISO 20022 as an international standard for financial service messaging for business processes.  To read more about NACHA and the work they do, visit their website at www.nacha.org.

Identifying the disconnect

We noted earlier that ACH was, by far, the most preferred way respondents to our study wanted to be paid.  If that’s the case, then why do most companies still receive paper checks?  Some insight can be gained by considering 5 typical responses from the 63% as to why they prefer ACH payments:

  • Clear quickly (within 3 days) and is very affordable
  • Easier and Faster. No need to wait for the check in the mail and then deposit it
  • Funds available more quickly
  • It’s more efficient from a cash flow perspective
  • Less chance of errant or lost payments, better record of remits

Since most companies identify faster payment from customers as one of the most – if not the most – important issue for their organization, transitioning from paper checks to ACH offers much promise.  Now consider 5 typical responses from the 25% as to why they prefer paper checks:

  • It’s how we have always done it
  • Old fashioned values
  • Because we have a bank courier
  • Easier to handle
  • We are not set up to receive other ways

It’s clear that the primary reason suppliers continue to accept paper checks is the fact that it’s more familiar, not necessarily that it’s more efficient or helps their organization get paid faster.  

Practical application of ACH

A real-world example of the benefits of accepting ACH payments can be found with the example of KHS Bicycles.  The KHS case study illustrates the challenges the company faced before accepting ACH payments as well as how incorporating ACH resulted in cost savings, more efficient payables and happier customers.  The case study can be found here: KHS ACH Case Study.

Including ACH as an option for customer payments makes perfect sense for those organizations interested in faster payment, reducing DSO, lower fees and taking advantage of early payment discounts.

Ernie Martin is Founder and Managing Director of Receivable Savvy (www.receivablesavvy.com). He brings over 25 years of experience in financial supply chain management, marketing and communications and draws upon his extensive experience to share knowledge and best practices with AR professionals. His resume also boasts time at several well-known brands and companies such as Tungsten Network, Delta Airlines, CIGNA Healthcare and Georgia Pacific as well as a number of years as an independent consultant.