Will COVID-19 Spell the End of Paper Check Payments to Suppliers?

Paper checks have been around for centuries.  And paper checks have shown surprising staying power in business-to-business commerce, long after consumers began shunning them in favor of more convenient electronic alternatives. 

But COVID-19 may have paper checks on the ropes.

Since the onset of COVID-19, the percentage of accounts payable departments that make at least half of their payments to suppliers using a paper check has declined by seven percentage points (from 41 percent to 34 percent).  That is according to the results of a survey conducted this week during a virtual town hall meeting held by the Institute of Finance and Management (IOFM). 

Importantly, three percent of the accounts payable leaders polled by IOFM during the virtual town hall meeting said they now make all their payments to suppliers via electronic methods such as Automated Clearing House (ACH), card or wire transfer.  None of the attendees to the virtual town hall meeting said they make all their payments electronically before the onset of COVID-19. 

The volume of checks used in business-to-business has been slowly declining for years.  But the progress that businesses have made in the past few weeks migrating from paper checks is amazing.  Not too long ago, paper checks represented three-quarters of all business-to-business payments.      

5 reasons businesses are distancing themselves from checks

There are five reasons that businesses are embracing electronic payments during COVID-19

4.  

5. 1. Electronic payments ensure business continuity

6. Eighty-eight percent of accounts payable departments are working remotely as a result of COVID-19, IOFM reports.  The staff at some departments also have been stretched thin as a result of illness.  Electronic payment methods such as ACH and card ensure that suppliers can get paid, even when staff cannot get into the office.  With electronic payments, there also is no need to send staff into the office for check runs, and potentially into harm’s way, if the office is in a coronavirus hot spot.  A secure cloud infrastructure and configurable access controls make sure that the right personnel can access a payments solution, no matter where they are located, to keep payments flowing.

7. 2. Electronic payments help head off supply chain disruptions

8. 1. Accounts payable departments are caught in the middle. On one side, they have experienced a spike in inquiries from suppliers regarding the status of payments.  On the other side, their senior management is looking for ways to extend payment terms.  Electronic payments offer a win-win proposition by facilitating supply chain financing, which gets suppliers paid faster, without impacting the payer’s balance sheet (and provides the buyer with revenue share).
   2.  

9. 3. Electronic payments solutions can be deployed fast

10. No business has the appetite for a complex, resource-intensive system deployment during a crisis.  The cloud infrastructure used by electronic payment solutions eliminates the need for complicated software or hardware installation.  The solutions also allow for fast integration with legacy systems, so there is little or no burden on IT staff.  And businesses only need to upload a single approved-payments file to make payments via the recipient’s desired payment method.
11.  

12. 4. Electronic payments are secure

13. The Federal Bureau of Investigations (FBI) and Interpol warn that bad actors are looking for ways to exploit disrupted operations to commit fraud. Payments solutions help mitigate the risk.  ACH and card account for far fewer incidents of fraud than paper checks.  And the controls built into payment solutions means a business does not have to forego its security and data protection standards due to remote workers.
14.  

15. 5. Electronic payments can free up cash on existing revenue

16. The economic upheaval caused by the COVID-19 pandemic is straining corporate cash flows. The cash-back rebates a business can earn from payments made by virtual card frees up cash on existing revenues, without disrupting payment terms with suppliers.  Some businesses earn millions in rebates!
17.  

The shift to electronic payments also completes the ‘last mile’ of accounts payable automation.

COVID-19 will have a lasting impact on accounts payable departments long after the curve has flattened, state governments have reopened their economies and employees return to their offices.  One of those long-term impacts may be a big change in the way that businesses pay their suppliers.