The problem with cheques in business

5 min read

As technology develops and more business functions are being moved online, cheques have quickly been dropping in popularity.

Declining payment methods

Cheques are the oldest known form, and were once the most popular form, of non-cash payment type in Australia. In fact, according to the Australian Payments Clearing Association (APCA), cheques were the most commonly used form of non-cash payments in Australia until the 1980s.

Over the past three decades, cheque payments have been in steady decline. APCA figures from a media release in April 2014 show that Australians are using 75 per cent fewer cheques than they did in 1997. Two-thirds (66 per cent) of this fall was recorded in the last decade alone.

More recently, the number of cheque payments has fallen dramatically. Just 800,000 cheques are now cleared through Australian banks each day, compared with 1.3 million in 2010 and 3.1 million in 2000.

As this form of payment moves closer to retirement, more modern and convenient payment types have begun to take over Australian banking regimes. In particular, direct debit, mobile channels and other relatively new e-commerce payment solutions are now used by millions of Australians every day.

"The Australian payments system is one of the most developed and dynamic in the world. Business and consumers have access to a broad yet increasing range of electronic payment methods and continue to embrace them enthusiastically," APCA Chief Executive Officer Chris Hamilton explained in a recent statement.

Studies from the APCA have forecast that cheques will become a rarity by 2018, as businesses and consumers increase their uptake of more convenient electronic payments, such as direct debit.

However, the exact time of the seemingly inevitable total retirement of cheques in Australia will be largely influenced by the decision of businesses to turn away this form of payment.

"It's going to be contingent on people accepting cheques, if they stop accepting cheques then that's going to be the biggest nail in the coffin," business intelligence firm RFi's director Alan Shields told News Limited in 2013. "The people that use them are a minority but it's not going to be an easy drug to kick."

The decision to stop accepting cheques may be a difficult choice for some small businesses, particularly if regular customers insist on sticking with this dying payment type.

If you are struggling to weigh the pros and cons of cheque payments, here are three key problems with cheques in business.

Unnecessary time and effort

When a client hands you a cheque it is only the beginning of a long and demanding paper-chain. In addition to adding the payment to your records, you must then deposit the cheque at your bank – filling in forms and taking time out of your already busy day.

Alternatively, with other payment solutions, such as direct debit and cloud payments, you do away with this unnecessary paperwork, so you can concentrate on more important business functions.

The risk of cheques bouncing

A cheque takes a few days to process and clear. As a result, the payer could accidentally, or even intentionally, spend beyond their means, resulting in the cheque bouncing. If a direct debit fails, you have the option to request the debit again.

In order to grow your business, it's crucial to reduce the number of missed payments.  Chasing missed payments can take time away from attracting new clients and growing your business. Worse still, too many missed payments can lead to cash flow problems, leaving your own bills sit unpaid. Reviewing your payment terms and payment options can help ensure you get paid on time.

Cheque fraud

While most payment types are not immune to fraud, cheque fraud can be difficult to rectify as a business. If a customer insists on paying with a cheque, it is crucial that you review the identity and signature of the payer, because if the cheque turns out to be fraudulent, you could end up out of pocket.

Fortunately, efficient and cost-effective options such as BPAY and direct debit can offer an alternative solution for businesses.