Business Check Payments: Accepting & Making Payments by Check
Business Check Payments: Accepting & Making Payments by Check
- Do businesses still pay by check?
- Business check payments vs. other methods
- Are check payments a good idea for your business?
- How to accept checks for your business
Do businesses still pay by check?
Though often seen as an antiquated method of making a payment, traditional, paper checks are still very much used form of payment in certain demographics, especially in the world of B2B payments. The fintech website PYMNTS reported that 81 percent of business-to-business payments are made with a check. Check payments are a classic, recognizable method buyers see as both secure and trustworthy, making it difficult to convince them to use other, more tech-driven solutions–online payments, ACH, etc.–to their payment problems. More so, it’s a difficult, often complex, slow challenge to stop accepting check payments.
That said, though many businesses are still using checks, the payment method has started to see some decline, especially in small to midsize businesses in the wake of the 2020 pandemic.The ability to process checks continues to grow more costly and more complex, pushing many SMBs away from paying with checks and accepting them as a form of payment. Check processing can be a costly endeavor, with some reports stating that it can cost up to $22 dollars in fees on average for a single invoice paid via check. Beyond that, processing checks manually is a complicated and timely process that many SMBs cite as the largest pain point in their payment processes.
To summarize, check payments are still used in surprisingly large numbers, but their decline in popularity is starting to become apparent. To help businesses navigate this sometimes confusing space, we’ve put together a guide that will help to explain the differences between business check payments and personal checks, explore the pros (and the cons) of check payments for your business, and the basics of how to accept checks for your business.
What differentiates business check payments from other payment methods?
There are many different types of payment methods and many different types of checks. Each of them offers slightly different benefits that can be better suited to specific business models. The business check is, simply put, a check written against a business checking account. Types of business checks are payroll checks, checks to pay vendors for supplies or inventory, and really any other written check that pays, from a business checking account, for a business-related expense. The difference between it and other payment methods merely being that business check payments draw from business checking accounts whereas other payment methods might draw from personal checking accounts and/or rely on credit accounts.
Difference Between Business Checks and Personal Checks
There are two main types of checks–business and personal. Which raises the question: is there a difference between business checks and personal checks? The answer: absolutely. Again, when you use business check payments, you are drawing on funds from a business checking account. A business checking account merely being a checking account you open with a banking institution–brick-and-mortar or otherwise–strictly for your business, allowing you to write checks against the assets of your business as opposed to your own personal finances. Business checking accounts also establish your business as a separate legal entity so if you get into financial hot water, any possible negative effects will be aimed at your business and not at your banking account. Business checking accounts are recommended by the IRS for businesses and can come with tempting tax deductions.
A personal check is a check written against your own personal financial assets. When you write a check, and that check is processed, money is withdrawn from your personal checking account before being deposited in the account of whomever you are paying. Though more and more businesses are accepting credit and debit cards, there are still quite a few holdouts who expect checks (or cash) as the only acceptable form of payment. When it comes to accepting checks, it is good to recognize that personal checks aren’t guaranteed and if you accept a check from a payer who doesn’t have the necessary money in their personal checking account, it can cause problems.
ACH Payments vs. Check Payments for Your Business
ACH payments or automated clearing house payments (or ACH checks) are, for all intents and purposes, electronic checks that pull from your checking account–business or otherwise. They are processed through the Automated Clearing House (ACH) Network, a batch processing network used by financial institutions, so are extremely fast, easy to initiate and, on most occasions, free. ACH payments can, and are oftentimes used to pay person-to-person bills or recurring payments.
The differences between ACH payments and check payments for a business are small but noteworthy. The processing time between ACH payments and check payments are similar with ACH payments taking 1-2 days to process and checks often taking 2 days. Where the main difference lies between the two forms of payment is cost. Accepting check payments as a business is definitely the more expensive method of the two. ACH payments have an average cost–when they aren’t completely free–of 29 cents per transaction where checks can be up to 1.22 per check. And though this doesn’t seem like a huge amount of difference, for an SMB deciding between the two payments, the amount of money saved using ACH transfers can be immense. A study from Bill.com shows that due to the labor, time, and resources that go into the creation and processing of every check, the cost of making B2B payments by check can be $24,540 a year. Where ACH payments would cost somewhere around $1,600 dollars.
In general, ACH payments are going to save businesses money, time, and labor, particularly when it comes to recurring payments like payroll or recurring purchases of inventory or other bills associated with running a business.
Are check payments a good idea for your business?
Checks are a popular form of payment in the B2B realm, but the use of business check payments comes with pros and cons.
Pros of accepting check payments as a business
A known entity
Even in a world where the majority of payments are made using credit or debit cards or online, checks are still a recognizable form of payment used by a lot of people. In the world of B2B, corporate checks are often used, so making the decision not to accept checks (or using a different method of payment acceptance) can limit your customer base.
In general, checks are hard to steal and hard to forge. They can also be tracked, so in a situation where a check is stolen, you already have a good idea of where the payment is going and can quickly cancel it. For a business making large purchases, the level of security provided by paying with checks can be very useful.
Ease of processing
Because of the familiarity and long history of check writing and cashing, there’s an established system in place for processing checks. Meaning that most businesses will be able to cash checks through a financial institution, but not every business will be able to process credit, debit, or online payments.
Slower processing times
Though most companies want payments processed quickly, there are times when a business needs a few extra days before money gets pulled from their account. Checks take longer. They have to be purchased and written and sent before they even get to their final destination and start the process of being cashed by a financial institution. All of this processing time gives businesses that might be low on funds but still need to pay for goods and services extra time to get more funds in the bank. This is a strong pro for smaller businesses that are just starting on their business journeys.
Cons of accepting check payments as a business
Checks can bounce
When you’re asking yourself, “Is it bad for a business to accept check payments?” the first thing you have to realize is that if a check comes from a checking account–personal or business–that doesn’t have enough funds to cover the purchase, the check will bounce. And when a check bounces you’ll be left without funds that you may need.
On the other hand, checks can be stopped or canceled by the payer up until they’ve been processed. This takes some of the payment control out of a business’s hands and makes checks just a touch less reliable.
Checks take time
It takes up to 5 days to process a check. If you’re a business that needs funds fast or on a certain schedule, checks are not a great way to get paid.
Checks take more labor
It takes more people to process checks than say an ACH payment. More people means more labor and more labor means more money. Beyond that, adding extra people to the payment workflow adds more steps and more steps add more time.
So, is it bad for a business to accept check payments? The answer isn’t black-and-white. Accepting checks opens the door for a wider customer base, but the process of doing so increases cost, labor and time spent just to get paid. Figuring out when and if your business should accept checks means taking a good look at your business model and if the extra cost and processing time is worthwhile.
How to accept checks for your business & use check payments
Accepting checks and paying with checks involves a sometimes lengthy process. Below we’ve provided step-by-step instructions to accept checks as well as the best way to take check payments for small businesses.
How to accept checks for your business:
- Establish a check acceptance policy. This means deciding what are acceptable forms of ID for those wishing to pay by check and how much (or how little) you a customer can pay using a check. When your acceptance policy is set up, stick by it.
- Verify the information on the check. Make sure that the amount of payment required matches up with the amount written on the check.
- Verify personal and banking information. A check needs to have these items included:
- Complete name of the payer
- Current date
- The bank ID numbers–account and routing/ABA
- Your business’s name
- The amount of payment
- A signature
- Deposit the check at a credible financial institution. Deposit your check at a bank or by using a bank app or other software to cash the check electronically.
How to use checks for payroll or other business payments:
- If you are simply paying a bill or another business for goods or services, paying by check starts by filling out the check with the information required.
- The name of the company you’re paying
- The amount you’re paying that company
- Your signature
- The account or statement number
- Place the check in an addressed envelope.
- Send the check out in the mail.
- If you’re paying payroll using checks you’ll have to acquire payroll checks in some manner. This can involve either working with a company like ADP to provide these checks (and all of the processing that goes into paying payroll checks) or printing the checks yourself.
- To print payroll checks you’ll need supplies.
- Payroll software
- Checking printing software
- Online Check Writer
- Print Checks Pro
- Check stock
- Magnetic ink
- Payroll software
- When you have these supplies, you’ll have to process the information for each employee based on their hourly wage and/or salary.
- Using your payroll software you can then enter the information into the check forms
- Print the checks.
- Deliver the checks either via the mail or in person.
Though there are pros to accepting and paying with checks, in general, it’s a declining method of payment due to the cost and labor associated with it and the advent of new ways of payment that are faster and more convenient. That said, accepting payments via check can be an appropriate method for certain businesses. Before you decide if your business will accept checks make sure you do the research on check payments and check processing.