The hidden cost of checks

April 22, 2016
5 minutes read

Back in 2009, Britain made a surprising announcement: they would be phasing out checks, with the goal of making them completely extinct by 2018. They later backtracked, but the decision to eliminate checks shows that they’re no longer an essential part of the economy.

Small businesses tend to accept checks more often than major chains. There’s a bit of a misconception that checks are more reliable and more secure than cards. The truth is, there are actually a lot of problems that come with the use of checks, especially for a small business. Here are just a few:

Inconvenience for your customers, unnecessary delays for you

When you pay for something by check, there are a lot of extra steps that you don’t need to worry about if you pay by card: finding your checks, finding and addressing an envelope, buying or tracking down a stamp, and then physically taking the check to the mail. None of these are particularly difficult tasks (although there’s no guarantee these days that you’ll be able to find a check, an envelope and a stamp quickly!), but the time it takes to do all of these adds up.

Your customers don’t want to go through this, and you might even lose them to a similar business that offers a more convenient way to pay.

Long Processing Times

When you get paid by cash or a card, you get the money you deserve for your work quickly. That’s not true when it comes to checks. Even if you take a check to the bank immediately, your funds won’t arrive in your account right away.

If all goes well, the check will clear by the end of the next business day. The problem is, it doesn’t always go well. If the bank decides to hold the check, it can be up to eight business days before the hold is removed. That’s assuming that your check isn’t crossing any borders. If it is, it can be held for up to thirty days.

We did the math based on payments made to small business owners who use Wave. 75% of payments by credit card are deposited in seven days or less. It can take up to seventeen days for payments made by check.

When you’re counting on payments from every customer, you just can’t wait that long for your payments to come through. Late payments from customers can have a huge effect on your cash flow. You’ve got bills to pay. Maybe you have some employees who need their paycheck. Problems with your cash flow can cut into your profits, and checks just aren’t reliable enough to guarantee that this won’t happen to you.

Tricky Customers

Accepting checks can also unfortunately leave room for malicious customers to take advantage of you and your business. If a check bounces, it’s your responsibility to track the customer down and ask them to pay. The alternative is letting the payment go and accepting the loss.

Maybe you’ll get your payment eventually, if you’re willing to put up a good fight. But you could be spending that time and energy on a new customer who deserves your attention instead.

This isn’t a problem with debit cards, which won’t be accepted if there are insufficient funds. It’s also not a problem with credit cards. If someone pays you with a credit card, but then can’t pay their bill, it’s up to the card provider to collect the payment. The money from the card is already in your account, and it won’t be taken back.

Alternatives to Checks

One of the easiest options is to only accept cash. However, if you hope to grow your business, this may not be a long-term solution. More and more people are beginning to move away from using cash at all. USA Today reported that 33% of people use a card for every purchase they make, even purchases under $5. Younger age groups in particular are more likely to use cards on small purchases. This can make it difficult for a cash-only business to attract new customers. And if you’re not doing business face-to-face with your customers, it’s probably not possible at all.

In many cases, the best option for a small business may be to accept credit cards. It’s convenient for your customers, you get your money quickly, and the fees are affordable.

With Wave, you can accept credit cards for 2.9% + 30¢ per transaction (3.4% + 30¢ for American Express). You only pay for what you use — there are no monthly fees or hidden charges. Get started and begin accepting credit cards in under 60 seconds. Customers in the U.S.* get their funds in 2 business days (after initial account review and setup).

Kevin Manning

By Kevin Manning

The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.

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