Pay by E-checks vs. Physical Check
In most countries, checks have “gone the way of the fax machine and rotary telephone.” (Bloomberg, “Why Can’t Americans Ditch Checks?” July 26, 2017).
Our Chart of Accounts Grand Tour continues to explore Cash, the first account on your balance sheet, as we look at options to manage cash payments electronically.
Intuit makes it very easy and cheap to receive payments electronically from customers. Just sign up for QuickBooks Payments. Also at this website is a link to a short tutorial on how to use QuickBooks Payments.
Paying vendors electronically, however, is a tad more complicated, though it’s recently gotten much easier.
Problems with Physical Checks
Consider that paying vendors by check presents many problems, including:
Lots of work
You have to create checks, print them, stuff them into envelopes, mail them, reconcile them to your bank statement and follow up on them when people do not deposit or cash them promptly. People lose checks, which necessitates reissuing them and voiding and putting a stop payment on the original check. Checks that never clear the bank must eventually be turned over to the state according to your state’s abandoned property laws.
We have found clients often mix up check numbers in their books. They put check stock in the printer in reverse order from the way QuickBooks assigned check numbers to the printed checks. Frequently we see check numbers omitted altogether. Either way, missing or incorrect check numbers make reconciling the bank account more difficult.
A client paid a contractor weekly using physical checks. The contractor deposited the checks to his bank using the Wells Fargo “mobile deposit” service. The vendor apparently did not destroy the deposited checks following Wells Fargo’s guidelines. He left previously deposited checks in his car which he took to an auto repair shop. Someone at the shop found the checks, stole them and deposited them again. Fortunately our alert client caught the duplicate payments when reconciling the bank account. While Wells Fargo issued a refund for the fraudulent cleared checks, it created extra work and worry for our client who had to manage the organization’s cash flow while the refund was pending.
Why Use Physical Checks?
So why do we continue to use physical checks? Here are a few reasons:
- Force of habit. It’s the way we’ve always done it.
- Many Americans are “unbanked;” they do not maintain an account at a bank or other financial institution. Without a bank account, they cannot receive electronic payments.
- The transition to electronically sending (and receiving) payments appears more difficult than it is.
E-check, ACH Payment or Electronic Funds Transfer?
An electronic payment sent from one bank account to another is called an e-check. Sometimes it is also referred to as an ACH payment or an EFT payment. Where did all these terms come from? According to the paysimple blog, “An eCheck is a type of electronic funds transfer (EFT) that uses the Automated Clearing House (ACH) network to process the payment.”
To receive e-payments, vendors must be able to use the ACH network to accept payments via electronic transfer. As mentioned above, QuickBooks Payments allows you to sign up for a merchant account (no cost to sign up) which then allows you to receive e-checks from your clients. However, QuickBooks Payments does not allow you to send electronic payments to your vendors.
QuickBooks Bill Pay
A service recently integrated into QuickBooks Online is called QuickBooks Bill Pay. It allows you to generate e-payments to your vendors from within QuickBooks Online, or regular checks to vendors that do not accept e-payments. The Bill Pay process runs on the Bill.com platform. You can invite your vendors to accept electronic payments. The service has a cost, currently $15.95 per month for up to 20 payments, and $6.95 for each additional set of 10 payments.
An inexpensive option to paying vendors electronically is ViewPost. There is no fee to join ViewPost and no monthly fees. Electronic checks to your vendors cost 50 cents each. We have not yet checked out integration with QuickBooks Online, but even if it does not integrate, we see Viewpost as a great solution, especially for smaller nonprofits. We especially like the clean interface and ease with which we can pull reports.
In our field test we had no trouble getting a couple of our vendors to sign up to accept electronic checks. We found it helpful to give the vendor a heads up that we sent them an invitation from our Viewpost account to join the Viewpost network. To enable acceptance of e-checks, they need to enter their bank information and then verify two small test deposits sent by Viewpost. The benefit to the vendor is hassle-free payment.
If you process a lot of payables, you may be interested in a better system for managing them. Check out Bill.com, a comprehensive accounts payable and accounts receivable solution that integrates with QuickBooks Online. If a Bill.com user wants to send an e-check to a vendor not already in the bill.com network, the user can invite the vendor to create a free account to accept e-payments (similar to the Viewpost network).
Other Options for Eliminating Checks
If you do a Google search, you’ll find other competing services for your e-payment business besides the options we list above.
Some payroll services, such as Intuit Online Payroll, allow you to pay independent contractors via direct deposit and will also issue the 1099-MISC forms to your vendors in January each year.
Don’t forget about other options to pay vendors, including credit card and PayPal.
Pay employees by direct deposit. If you hire workers who do not have bank accounts, find a payroll service that can load the net paychecks onto employees’ pay cards.
Get Efficient in 2018!
One of the easiest ways you can gain efficiency in your operations and bookkeeping is to eliminate physical checks. For more general information on electronic payments, see Electronic Payments for Non-profits.
We challenge you to reduce or even eliminate use of physical checks. We think you’ll love the efficiencies. Are you currently making electronic payments to vendors? We’d love to hear about your experience and the solutions you use.