Despite a reprieve, the writing is on the wall for cheques, argues Adrian Stafford-Jones
AS THE ECONOMY teeters on the edge of a double-dip recession, government pledges to reduce red tape and make business easier for the UK’s SMEs seem increasingly critical. But given the emphasis on streamlining processes, the question has to be asked why so many organisations are still reliant on making payments via time-consuming and highly inefficient cheques.
The decision to retain cheques as a payment mechanism for consumers makes sense. But cheque usage is falling by around 10 per cent year-on-year for a reason: electronic payment mechanisms are not only more secure but, critically, significantly reduce administrative overheads and provide far more financial control.
Every business is searching for the most efficient, low-cost payment route and, in 2011, that is provided by electronic payment methods, not cheques.
The Payments Council has been applauded for its decision to scrap the 2018 deadline for the withdrawal of the cheque service. In the light of strong opposition from consumers who still rely on cheques as a secure method of payment, forcing the adoption of alternative payment methods would cause significant hardship.
However, the decision could be perceived as bad news for UK businesses amid growing fears of another financial crisis. Without a clear deadline, companies may be tempted to postpone plans to migrate from cheques to electronic payments, despite the clear financial, productivity and security benefits on offer.
For many companies, cheques still provide a perception of greater financial control. Finance directors believe that the ability to control when cheques are paid to suppliers is key to managing cash flow, with ‘the cheque is in the post’ giving organisations an additional week in postal and bank processing time. In reality, this perception is not valid. Postal delays and supplier processing time mean organisations cannot accurately predict when the payment will actually be taken from the account, while postal unreliability can risk significant misunderstanding with key business partners.
In contrast, scheduling a payment via electronic methods such as Bacs or Faster Payments provides both the company and the supplier with a trusted mechanism: both organisations know exactly when the payment will leave and arrive in the bank account and there is no risk of delay or reliance upon administrative processes.
There is little doubt that, in the long term, the writing is on the wall for cheques. With the UK’s SMEs now reconsidering growth strategies and looking again at costs, efficiency and scaling down non-profit making roles, cheques and other less secure and efficient payment methods need to be reassessed.
Of course, enabling charities and other institutions to continue to accept cheque payments makes sense. But failure to provide an incentive for UK businesses to move beyond this outdated, inefficient and costly payment medium is a concern. The government has pledged to minimise red tape and support economical, competitive SME operations, but organisations need also to maximise any opportunity to improve efficiency and financial security. Electronic payments should be an integral part of that process.
Adrian Stafford-Jones is managing director of Albany Software