In Don Draper’s famous pitch to Kodak he muses “Nostalgia...it’s delicate, but potent. It’s a twinge in your heart.” It's a poetic sentiment that doesn't take into account the reality that sometimes things are best left in the past, like paper checks. The disadvantages of using checks for business payments are hard to ignore, but you'd never guess it from the glossy image portrayed in Don Draper's world. Mad Men sells nostalgia like no other show to ever hit our screens. It takes us to a forgotten time, through the clack of typewriters, the spin of a Rolodex and the whir of rotary phones. You can practically smell the perfume and taste the Lucky Strikes. But as fans continue to indulge in the Netflix release of the show’s final season, it's important to remember that dwelling in the past for too long can be dangerous.
Consider this: the only business tool used by Madison Avenue ad agencies in the 1960s that is still in use today are the checks sitting on your desk. And you’re not alone in having them. According to the Association of Financial Professionals, U.S. businesses still pay more than half their bills by check. Nostalgia might make for great television, but it doesn’t mix well with banking. In this digital age, we demand fast, easy online experiences. To compete, businesses are mobilizing and modernizing. The way they pay and get paid should be no exception. Fintech firms offering platforms which they promise will ‘save the check’ are doing these businesses a great disservice. American companies are being left behind as the rest of the world moves on.
In Europe checks are now almost unheard of, the Canadian Government no longer pays with or accepts them, and they will be obsolete in the UK by 2018. Now imagine you’re at a checkout and the clerk pulls out a carbon imprint machine to process your credit card payment. That store would likely lose your respect and maybe even your business. Yet that’s the signal you’re sending to customers and vendors every time you cut them a check. As people increasingly use electronic payments in their consumer lives, so they come to expect the same standard in their professional lives as business leaders. It’s why the rest of the world is abandoning checks -- and we should too. Not only is paying with checks bad for a company’s brand, they’re expensive. According to a 2015 report by Paystream Advisors, checks cost 10 times more than ACH payments. Bank of America estimates that the average paper check transaction costs between $4 and $20. They’re also costing us in errors, wasted effort and missed benefits, not to mention increasing the risk of fraud. Businesses that use checks have no way to track their payments and, because of the time they take to print, send and clear, they make cash management unnecessarily difficult.
Worryingly, research by the Association of Finance Professionals shows that while 62% of companies were targets of payment fraud in 2014, over three quarters of those fraud instances involved checks. This does not amount to a winning strategy for businesses operating in the digital age. For organizations that are still using checks, the reality is that ditching them for electronic payments is the best way to turn an Accounts Payable department into a valued business function. It increases productivity and cash yield, reduces losses from fraud and improves accountability, compliance and reporting. It also has a positive impact on business decisions, by allowing for payment tracking and cash flow forecasting.
Done right, it can even turn AP into a profit center, by taking advantage of rebates on card and ACH payments. We all know that giving up checks will come with challenges. Internal systems need to be integrated and updated. Vendors need to be brought on the journey. CFOs need to be convinced of the ROI. Quite often, misconceptions about technology and emotional attachments to the status quo have to be overcome. Change is hard. And organizational change is even harder. But the success of American companies has long been built on our ability to adapt. Now, that means letting go of checks once and for all. So next time you feel that twinge of nostalgia as you sign a check, take a lesson from Don Draper himself: “You’re good. Get better.” Consign your checks to the 1960s. Bring your business practices in line with your personal standards. And join 21st Century companies around the rest of the world.