Written by Is check usage as common as it was 20 years ago? Definitely not! But do you know that the check is still a commonly used financial instrument, especially in B2B transactions?
That’s right!
An article by PYMTS shows that 40% of B2B transactions involve checks. But that was in 2022.
We’re in 2024, and this figure has likely gone down. But here’s the thing: we’re still many years away from writing the obituary of the check — if at all we’ll ever get to that point.
A 2024 report by Epson shows that traditional paper checks still account for 11% of all transactions and 12.4% of the value.
That’s to say, the question that has long been thought to be settled is still relevant: What’s better between checks and digital payment methods for your business?
In this article, we’ll be answering that question. We’ll examine the pros and cons of both payment methods to help you decide what works best for your case, so keep following closely.
Current Landscape of Payment Methods
As we’ve already established, traditional paper checks aren’t as common as they used to be. But they’re still in use, especially in the B2B sector for high-dollar value transactions and among the senior folks.
In a blog post by The Washington Post, it was established that a staggering 75% of retirement-age Americans still use checks. That’s a huge gap compared to the less than a tenth usage that was reported among the college-aged comrades.
Digital payment methods, on the other hand, have experienced a steady rise in usage over the years. A report by Statista shows that the total global transaction value in the digital payment market will hit US$ 11.53 trillion by the close of 2024, having grown more than twice its valuation of US$5.32 trillion in 2019.
And get this: The Compounded Annual Growth Rate (CAGR) of 9.52% between 2024 – 2028 suggests that the digital payment market will reach an all-time high valuation of US$16.58 trillion by 2028.
Take a look:
In other words, as much as checks are still being used today, it’s the digital payment methods that are currently running the show.
Pros of Checks As A Payment Method
Before we proceed, it’s worth mentioning that voided checks are different from the checks we’re talking about.
Voided checks are basically canceled checks commonly used to set up direct deposits and recurrent digital payments. You can check out the advantages of voided checks.
In our case, we’re talking about the actual checks being used as a form of payment. And here are the advantages associated with using checks:
1. Wide Acceptance
While electronic payments have been growing steadily, not all businesses have embraced them. That’s unlike checks, which are accepted by nearly all businesses regardless of their size or industry.
2. Cost-Effective
While both methods of payment charge fees, the cost of processing checks is significantly lower than transaction fees incurred when using digital payment methods.
3. You Get Some More Time
Unlike with digital alternatives, check payments aren’t instantaneous. The payee has to present the check to the bank and wait for some days.
That’s a disadvantage to the payee but to the payor, an advantage. That’s because it allows the payor to issue checks even without enough amount in their account and then load the account later.
4. You Can Pay in Advance
With checks, you can indicate when it can be cashed. Until the defined time, the payee won’t be able to cash it. This again allows the payor to issue a check even if they don’t have the funds available in the account at the time of issuance.
5. No Need For Digital Infrastructure
Issuing a check doesn’t require any training or digital infrastructure. This might not sound very convincing, especially with the current digital revolution, but it can be a plus for small businesses that are just starting up and haven’t acquired the necessary equipment.
Cons of Paper Check Payment
Just before you go the check way, get to know the cons. They include:
1. Processing Takes Time
This comes as a con if you’re the payee. If in urgent need of cash, checks may seem like they’re taking forever to get processed, as it requires several business days. This can bring delays in your operations, especially if you’re relying on the payment to run your business.
2. You Can Lose A Check
This is self-explanatory. Once you lose a check, it might translate to losing money, depending on the type of check you lost. Plus, since checks are physical, they can get damaged in case of fires, floods, and other incidents.
3. They Can Bounce
Checks don’t always translate to payment. In some cases, they can bounce. This can drag a transaction, sometimes making what would have taken seconds with digital payments take several days or even longer.
Pros of Digital Payment Methods:
Digital payment methods are increasingly becoming popular alternatives to paper checks owing to their numerous benefits. Some of these benefits include:
1. Fast
Digital payments are processed immediately upon the press of a button. That means the cash recipient doesn’t have to wait for days as with checks. The high transaction speed also means that businesses don’t need to spend days keeping tabs on a transaction that ought to have been completed days ago.
2. Convenient
Since paper checks have to be deposited with the bank, you can only take them there during working hours. That’s unlike digital payments that can be transferred at any time as everything is processed electronically.
3. Safe
Digital payments are safer than checks as long as security measures are put in place to prevent hacking and other cybercrime. Plus, since the funds are held and transferred electronically, one can’t lose them in case of fires or natural disasters.
4. Easy To Track
Digital payments are easier to track than checks. That’s because, with electronic money transfers, you can easily see the exact time money was sent and to who. This makes it easier, more convenient, and efficient for businesses to track and keep accurate records of their financial transactions.
5. Simple
Digital payments are pretty straightforward. In fact, for most methods, once you’ve done the initial transaction with a payee, subsequent transactions with that same recipient become more streamlined and effortless.
Cons of Digital Payment Methods
Despite all the perks that come with digital payment methods, it’s worth mentioning that these contemporary techniques come with their own set of drawbacks.
Here are some common cons:
1. Transaction Fees
More often, digital payments will require transaction fees, which is typically higher than the cost of processing checks. This can quickly add over time, especially if you do lots of transactions.
2. Cyber Crime
Cases of cyber crimes have increased in recent years, compromising the security aspect of digital payments. And while fraud can easily be prevented when preventive measures are deployed, it remains to be a major concern.
3. Dependency on Technology
Digital payment methods can only be executed where there’s proper technology. Typically, you need an internet-enabled device and good internet connectivity. These may be easily accessible to most people, but they still come in as additional costs avoidable by using paper checks.
4. Risk of Overdraft
Since they’re processed instantly, digital payments are vulnerable to overdrafts. This increases the risks of overdrafts, especially if you aren’t careful with how you’re spending the money.
Making the Right Choice
So, what method should you choose for your business? Do you go the way of checks, or do you embrace technology and use digital payment methods instead?
Well, as we’ve seen, both check and digital payment methods each come with its own set of pros and cons. Essentially, the ideal payment method depends on your individual needs, preferences, and the situation.
But if you want to develop a futuristic approach, then go with electronic payments. They’re faster, more convenient, safer, and easy to track.
However, if you’re a fan of traditional or if your business is relatively small and prefers simplicity, paper checks would be ideal for you. Even better, you can strike a balance between the two methods to reap the benefits of both.
Conclusion
The contemporary world, more than ever, offers more flexibility in terms of payment methods. But when choosing a suitable method for your business, consider the list of benefits and drawbacks highlighted in this article to help make informed decision. Ultimately, what matters is that you opt for a secure, fast, and convenient mode of payment that works best for your business needs.