Cost, Speed, and Risk: Breaking down paper vs. digital payments

While some industries run entirely off saved customer payment methods and autocharging users, others still favor paper checks. Retaining customers and getting paid are a priority, but businesses should weigh the pros and cons of each to find the best-suited financial functions. Here’s a rundown of some pros and cons. 

The Paper Trail: Paying By Check

Paying by check may seem impossibly old school, but there are still advantages.

Pros 

• Avoids most direct payment processing fees; opening mailed checks and depositing them at the bank is typically the cheapest way to receive and deposit customer payments. 
• Simplicity – the “check is in the mail” is music to most accounting department ears. 

Cons 

• It doesn’t cost anything to collect mail, open it, separate checks from their stubs, and take them to the bank – or does it? If an employee spends 25% of their time receiving and depositing checks, how much does this translate into the cost of wages or stack up to the alternative of paying a 2.5% credit card processing fee? While no one wants to give away 2.5% of a $100,000 customer payment, cashing a $50 check takes just as much time and effort as one for $100,000. 
• “It must have gotten lost in the mail” – everyone has been on both sides of this predicament and no one is ever happy to be there. Some companies may no longer be willing to cut paper checks due to the work and cost required to start and stop them. Similarly, some companies may request any payment method except a paper check – maybe their accounting department works remotely, or they’ve lost too many checks in the mail, or lost confidence in the postal service. 

Notes and Details

Many banks offer a service called a lockbox, a P.O. box specific to a company where they run a digital mailroom to open and scan received mail, including cashing customer checks. This option isn’t free and often comes with fees to have the lockbox itself, a fee paid per envelope opened, as well as per-page scan charge.

Many banks also offer customization, such as adding specific numbers (i.e., check numbers, customer numbers, or dates) to scanned materials – for an added fee, of course. Even with these fees, if you operate in an industry where a number of customers will only pay by paper check, a lockbox is the way to go rather than taking time away from someone in the office who could be doing other important tasks. 

For customers continuing to pay by check to locations other than a lockbox, the check deposit process can be sped up by purchasing or leasing a remote-deposit check scanner from a bank’s treasury management arm. The trip to the bank is avoided as well as creating a deposit slip. Check images are generally available the next day and are searchable by date, amount, and check number. 

The Alternative: Going Digital 

Digital pay is prevalent and preferred by many, though there are costs and risks.

Pros 

• Self-service saves time and time is money. Hundreds of customers not mailing checks that need to be manually opened, recorded, and deposited requires less staff. 
• The pay experience for customers: while some B2B companies may be more hesitant to switch to accepting cards, let alone automatically charging customers, keep in mind many of these same people may subscribe to Amazon Prime, Netflix, or other platforms requiring a stored credit card for automatic payments.  

Cons 

• Card transaction fees are the true hard cost of accepting payment methods other than paper checks. Card merchants take a percentage of each dollar collected and the software used to collect (Square, Stripe, PayPal, the list goes on) is also taking a percentage and likely a per transaction fee too. 
• Depending on a company’s technology and invoicing setup, there may also be the need to invest in website development or to enhance an ERP system for collecting and charging credit card payments, especially if this needs to be done automatically. 

Notes and Details 

Many companies consider ACH payments as a financial sweet spot. Fees for receiving ACHs are often capped (think $5 maximum rather than an uncapped 2.5%), and most credit card processors offer a parallel path for customers to store their ACH payments on file, which saves time.

Customers can also be charged a credit card transaction fee to recoup any losses a company incurs by allowing them the convenience to pay this way. While most people will not be happy to see the additional fee, it isn’t something they haven’t experienced before. 

Closing Thoughts 

The paper vs. digital debate revolves around many factors, including the type of business, the number of customers, the average transaction size, and how often customers are charged.  

There’s a generation of people who continue to pay credit card balances by mailing a paper check, and a few generations of people who wouldn’t even consider this as an option. Every company should consider its business, customers, team, and technology, then strike the balance that works best.  

The higher the volume and lower the payment size, the more it may require instituting digital and automatic payments. If the business has a lower volume of customers and higher transaction amounts, paper checks and ACHs could still be a great option if the manual work is kept to a minimum.