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The Hidden and Overt Costs of Paper Checks for B2B Payments

January 24, 2015

paper check

Nearly $10 per check. That is what market researchers estimate to be the cost of issuing paper checks. Contrast that with the roughly $1 per transaction for electronic payments (ACH). On the surface, that difference should catapult the migration from all paper checks to ACH to the top of your business priorities. But before you do, consider three critical questions:

  1. Do these numbers reflect the costs for your business accurately?
  2. What this your true return on investment (ROI) from moving to ACH?
  3. ACH may result in the loss of remittance information. What solutions can provide the value of ACH and the remittance information available in paper checks? 

This post will delineate all the costs of operating in-house payments. Even if your business only runs some of these tasks in-house, you can use the list as a basis for quantifying your costs.  Future posts will address the ROI of moving to ACH and resolving the loss of remittance information. 

Labor Costs

Labor costs comprise the largest expense incurred from in-house payment operations. Consider all of the steps involved in a fully manual process — from check approvals to handling payment exceptions.

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Some factors will mitigate the steps and the associated costs. An accounting or financial system that automates approval workflows will eliminate many of the pre-check-run activities.

But other factors will exacerbate the process. For example, more approvers and more complex approval rules complicate the process. More scheduled check runs per week result in repeats of these steps. And one-off or unscheduled check runs impose further time drain on staff time.

To calculate the labor costs for your business, use the figure as a framework for identifying:

  • What are all the steps involved in your in-house process?
  • Who is involved in performing the tasks?
  • What amount of time do these individuals spend in performing these activities? 
  • What are the fully-loaded compensation costs of these staff members?

Materials, Supplies, and Postage

To run in-house payment operations, businesses incur expenses for depreciation on magnetic ink character recognition (MICR) printers and envelope stuffing and sealing machines; postage; and supplies, including highly secure check stock, MICR toner, and envelopes. 

Bank Fees

Businesses pay bank fees for issuing checks. These costs may be included as separate line items in their bank statements, or may be bundled with other charges. Businesses will also pay incremental charges for fraud protection, such as positive pay, check reconciliation services, and retrieval of transaction history and check images. All of these costs should be considered in calculating the total cost of printing checks. 

Your Homework for this Week

A quantitative decision to move to ACH or to stay with paper checks requires a full assessment of the costs of all options. Some costs are overt, such as supplies and postage; other costs are not as obvious, such as the costs to investigate and reconcile payment exceptions. Use this post as a guide to begin to quantify the full costs of your operations. =

If you would like a tool to capture the costs of your payment operations, Bill.com has developed a calculator, in spreadsheet format, that captures the costs discussed in this blog. The calculator can be used to determine ROI of moving from checks to ACH payments. Contact us for a copy. 

Geraldine Cruz
Senior Director, Product Marketing, Bill.com
Geri Cruz leads new product launches, go-to-market strategy and execution, and product messaging for Bill.com. Throughout her career in technology, she has been passionate about innovation, growth strategies, and the customer experience. Geri holds a bachelor's degree in chemical engineering from Cornell University, and an MBA from The Wharton School.