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The Changing Technology Landscape - Cheque vs. Electronic Payment Dilemma

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With recent advancement of technology in various industries including banking, the relevance of cheque payment method needs to be questioned. 

During those years where the technology penetration is low, payment to suppliers were done via cheque. However, with recent advancement of technology in various industries including banking, the relevance of cheque payment method needs to be questioned. Migrating suppliers from cheque to electronic payments (ACH) is one of the levers that must be pursued as part of the transformation roadmap. However, this drive remains a non-starter in most organizations due to a combination of reasons - internal resistance, misconceptions, perceptions etc. 

Following are some techniques companies can look forward to adopt to drive this leg of improvement as part of their transformation journey -

  • Eliminating myths around 'Float':  With facilities like cheque deposits being handled by electronic image exchange, payable-at-par cheques, centralized lockbox service offerings from Banks etc., the float (in days) experienced in the past is virtually reduced to 2 to 3 days.   With these developments, float remains more or less the same when compared to electronic payment methods
  • Obtaining better clarity on cost per payment: Like in any other industry, with increase in competition, banks are working towards reducing the processing cost of an Electronic Payment from time to time.  Eventually, the costs incurred on printing, sorting, mailing, returned cheques, escheatment etc., overweighs the costs that typically spend per electronic payment
  • Removing apprehensions of suppliers: Obtaining the consent of supplier for migrating to electronic payment is the most important factor.   It is advisable to make a pro-active effort in putting together a material that explains the advantages in store by shifting to electronic payments e.g., faster access to funds, minimizing the risk of returned payments, elimination of person dependencies, assuring availability of mandatory information on remittance slips etc.,
  • Make it mandatory while on-boarding new suppliers: Comparatively, it is easy to on-board a new supplier when compared to existing supplier. For those set of suppliers who needs you more than vice-versa, make electronic payments mandatory.

At a global level, as per various benchmarking data on the web, electronic payments account for only around 60% to 65% of the total payments.  Europe (sans UK) tops the list with 100% electronic payments by way of removing cheque as one of the payment methods. As long as cheque payment method is in use in a particular country/geography, some % of cheque payments continue to be in use.  In those geographies, one should aim to drive to increase the electronic payments to a minimum of 90%.

Lastly on the most important aspect of cost savings, an electronic payment (ACH) typically reduces the cost per payment up to 50%.

With cost reductions continuing to be the primary focus across the organizations, it is strongly recommended to keep the exercise of migrating suppliers to electronic payments in the top priority list.


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